<PAGE>


================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

                                   ----------

[X]                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For Fiscal Year Ended: December 31, 2001

                                       OR

[_]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
                        PERIOD FROM ________ TO ________.

                           Commission File No. 0-22958
                             ----------------------

                          INTERPORE INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

             Delaware                                       95-3043318
 (State or other jurisdiction of                         (I.R.S. employer
 incorporation or organization)                      identification number)


 181 Technology Drive, Irvine, California                        92618-2402
 (Address of principal executive offices)                        (Zip code)

       Registrant's telephone number, including area code: (949) 453-3200
                             ----------------------
           Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of each exchange
            Title of each class                     on which registered
            -------------------                    ---------------------
                    None

           Securities registered pursuant to Section 12(g) of the Act:

                           Common stock, no par value
                             ----------------------
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

     As of March 15, 2002, the aggregate market value of voting stock of
Interpore International, Inc. held by non-affiliates was $144,080,000 based upon
the closing price of such stock on The Nasdaq Stock Market. The number of shares
of common stock outstanding as of that date was 17,223,010.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of our Joint Proxy Statement for the 2002 Annual Meeting of
Stockholders of Interpore International, Inc. are incorporated by this reference
into Part III as set forth herein.

================================================================================




<PAGE>

                                     PART I

Item 1.  Business

Overview

     We are a medical device company that designs, develops, manufactures and
markets a complementary portfolio of products for spine, orthobiologic and
minimally invasive surgery applications. Our focus is primarily on the spinal
surgery market. Our product portfolio addresses what we believe are two of the
fastest growing areas in the medical device industry--spinal implants and
orthobiologics.

     Virtually all spine fusion procedures require the use of a bone graft and a
majority of these procedures also use spinal implants. We offer three distinct
product lines which can be used in combination for spinal fusions: spinal
implants, synthetic bone graft materials and products used to derive growth
factors. Because spine surgeons are the primary customers for each of our
product lines, we believe our complementary product portfolio provides
substantial cross selling opportunities to our distribution network. We plan to
develop and commercialize new products which will allow us to offer our
customers a more comprehensive solution for spine fusion procedures.

     In the spinal implant product category, our principal product offering
includes the SYNERGY(TM) Spinal System, the C-TEK(TM) Anterior Cervical Plate
system and the soon-to-be-released GEO(TM) Structure vertebral body replacement
device. Upon the release of the GEO Structure, we believe our product offering
will be applicable to nearly all spine stabilization procedures.

     Our principal orthobiologic offering includes synthetic bone graft products
and AGF(TM) (Autologous Growth Factors(TM)) related products. Our PRO OSTEON(TM)
products are implanted in a bone deficit and provide a matrix that facilitates
new bone ingrowth. PRO OSTEON was the first synthetic bone graft substitute to
obtain FDA approval for orthopedic applications. Our BONEPLAST(TM) is a
resorbable bone void filler that is replaced by the patient's own bone during
the healing process. AGF is a concentrate of growth factors derived
intraoperatively from platelets in a patient's own blood. These growth factors
are involved in initiating the bone healing cascade. We believe AGF will have
application in a wide variety of bone and soft tissue procedures.

     In July 2001, we acquired American OsteoMedix Corporation, a developer and
marketer of minimally invasive surgery products including the CDO(TM) System and
LP/2/(TM) System. These systems are designed to facilitate delivery of
biocompatible materials into bone through small incisions.

Spine Anatomy

     The spinal column consists of 24 separate bones called vertebrae that are
connected together to permit a normal range of motion. The spinal cord, the
body's central nerve column, is enclosed within the spinal column. Vertebrae are
paired into what are called motion segments that move by means of three joints:
two facet joints and one spinal disc. The typical spine, as it relates to spinal
implants, is made up of the following four main regions:

     .    Cervical vertebrae are the first seven vertebrae in the neck;

     .    Thoracic vertebrae are the next twelve vertebrae in the chest or rib
          cage;

     .    Lumbar vertebrae are the next five vertebrae in the lower back; and

     .    The sacrum.

Together, the thoracic vertebrae and the lumbar vertebrae are frequently
referred to as the thoraco-lumbar region of the spine.



                                       1

<PAGE>


Spine Disorders

     The following are the four major categories of spine disorders:

     .    Degenerative conditions. Degenerative conditions in the facet joints
          and disc can result in instability and impingement on the nerve roots
          as they exit the spinal canal, causing back pain or radiating pain in
          the arms or legs.

     .    Deformities. Deformities, such as scoliosis, are deviations in the
          normal curvature and alignment of the spine. Deformities range in
          severity from cosmetic issues through varying levels of pain,
          discomfort or reduced function.

     .    Trauma. Trauma, or injuries to the spine, if not corrected, can result
          in instability, pain, damage to the spinal cord and/or nerve roots,
          paralysis and deformity.

     .    Tumors. Tumors in the spine typically occur in the vertebral body and
          eventually result in fracture of the vertebral body, causing
          instability, pain and deformity.

Spinal Implant Market Overview

     The prescribed treatment for spine disorders depends on the severity and
duration of the disorder and the success or failure of non-operative therapies.
Non-operative therapies include bed rest, medication, lifestyle modification,
exercise, physical therapy, chiropractic care and steroid injections. However,
non-operative treatment options are not effective in many cases, and we estimate
that over 500,000 patients undergo spinal surgery, such as spine fusions and
spinal discectomies, each year in the United States. The number of spine fusion
procedures performed annually in the United States is estimated to exceed
300,000.

     Advanced cases of spine disorders can require that surgeons remove all or
part of a damaged disc and/or fuse two or more adjoining vertebrae together. A
fusion involves the placement of bone graft material between two vertebrae and
may involve the use of spinal implants to immobilize the vertebrae while they
fuse together. The bone graft is intended to provide a matrix that facilitates
new bone ingrowth. Complete formation of new bone may take six to eighteen
months. For many years, surgeons have sought a means to increase the rate of new
bone formation at a surgical site. However, until recently, no growth inducing
agents were commercially available.

     We estimate that product sales in the U.S. spinal market are divided
approximately as follows: 50% in the thoraco-lumbar spine generally using
posterior instrumentation systems (i.e. hooks, rods and screws), 25% in the
cervical spine generally using cervical plates, and 25% using intervertebral
devices, also called spine cages.

Our Spine Products

     SYNERGY Spinal System. Our SYNERGY Spinal System consists of rods, hooks
and screws that are attached to vertebrae adjacent to an injured or defective
area of the spine. Our system is a "universal" implant system that allows
surgeons to treat both the thoracic and lumbar portions of the spine. We believe
our SYNERGY Spinal System offers a number of benefits, including the following:

     .    Ease of Use. Our SYNERGY Spinal System was engineered to be easy for
          surgeons to use, reducing surgical time and requiring less
          manipulation. The screws and hooks are top tightening, the rods do not
          require pre-loading of additional components, and all implants allow
          for free rod rotation.

              .    Our patented variable locking screw design allows the surgeon
                   to angle and tighten screws in many planes, reducing the
                   amount of required rod bending and facilitating rod
                   placement.


                                       2

<PAGE>



          .    The patented design of the external hexagonal head of our double
               hex set screw shears off at a predetermined torque, allowing the
               surgeon to consistently tighten screws to the right tension.
               However, an internal hexagonal cavity remains to allow the
               surgeon to remove the set screw if necessary.

     .    Universal Application. SYNERGY implants come in various sizes and
          types to meet the surgeon's preferences and the patient's anatomy,
          providing a secure anatomic fit for virtually any pathology. The
          SYNERGY Spinal System does not require that the surgeon follow a
          single surgical protocol, but provides several options, and can be
          used in both anterior and posterior applications, in both adults and
          children.

     .    Smaller and Stronger. We offer SYNERGY implants in either stainless
          steel or titanium. The strength of the SYNERGY implants provides
          resistance to fatigue and allows the implants to be smaller than many
          competing products. Titanium implants are preferred in many foreign
          markets and are being used increasingly in the United States because
          titanium allows magnetic resonance imaging of the spinal area.

     .    Low Profile. Profile describes the prominence of implants above the
          normal bony surfaces of the spine. The SYNERGY Spinal System was
          designed to minimize the height and bulk of its implants, reducing the
          risk of irritation, inflammation and infection for the patient. It has
          been ranked as having one of the lowest profiles of commonly available
          spinal implant systems.

     C-TEK Anterior Cervical Plate System. Our C-TEK is a titanium plate that is
attached using screws to two or more vertebrae in the cervical spine to
facilitate spine fusion. We received FDA 510(k) clearance of the C-TEK in late
2000, and introduced it to the market in the first quarter of 2001. We believe
our C-TEK System offers a number of benefits, including the following:

     .    Low Profile and Narrow Width. The C-TEK has one of the lowest profiles
          among the cervical plates available to the market, and its width is
          narrow. These characteristics are particularly important in the
          cervical spine, where anterior implants must be placed close to soft
          tissues in the throat.

     .    Fixed and Slotted Hole Versions. While most competitors' cervical
          plate systems incorporate either a fixed hole or a slotted hole
          design, our C-TEK is available in either design in order to
          accommodate the physician's surgical philosophy. These features allow
          the surgeon to create rigid, semi-rigid or load-sharing constructs.

     .    One-Step Locking. All cervical plate systems must incorporate some
          safeguard to prevent the backing out of screws, which can be a
          significant problem because the implants are placed very close to soft
          tissues in the throat. While most other cervical plate systems require
          a locking procedure to be applied to each screw, our C-TEK
          incorporates a patented one-step locking mechanism that enables all
          screws to be locked with a single procedural step.

     GEO Structure. This unique titanium spacer has a geometric design which
provides very high strength with a minimum amount of metal in the implant. This
design allows the surgeon to place a larger quantity of graft material at the
graft site, which may increase the probability of a successful fusion. It also
allows a surgeon to more easily see the graft site after a procedure and to
better assess fusion. We received 510(k) clearance for the oval version of this
product in the third quarter of 2001 and began limited distribution in the first
quarter of 2002. We received 510(k) clearance for the rectangular version of
this product in the first quarter of 2002.

     TPS(TM) Telescopic Plate Spacer. Our TPS is an expandable titanium spacer
intended to replace one or two vertebral bodies that must be removed due to
cancer. This device combines the functions of an anterior plate and a vertebral
column spacer and it incorporates a patented telescoping feature. We received a
Humanitarian Device Exemption (HDE) from the FDA in early 2000 for the cervical
spine version of the TPS. In November 2001, we received FDA 510(k) clearance for
the thoraco-lumbar version.


                                       3

<PAGE>


Orthobiologics Market Overview

     Bone is a composite material made up of bone cells and a porous matrix. The
matrix is composed of collagen and ceramic calcium phosphate crystals. Bone
continuously remodels itself, thereby repairing the small imperfections formed
due to everyday activity. Bone will often spontaneously repair minor fractures
without surgical intervention. However, major skeletal deficiencies from trauma,
spinal instability, degenerative conditions and tumor will frequently require a
surgical procedure involving bone graft.

     There are three types of orthobiologic bone grafting products:

     .    Osteoconductive materials, which act as a scaffold for bone and tissue
          growth while healing occurs;

     .    Osteoinductive materials, which promote or stimulate bone or tissue
          growth; and

     .    Combination materials with both osteoconductive and osteoinductive
          characteristics.

     Bone Grafts. It is estimated that bone grafts are used in over 600,000
procedures annually in the United States. They are used for a wide variety of
indications including spine fusions, total joint surgery, maxillofacial
applications and other surgical procedures. There are currently three major
categories of bone grafts: autograft, allograft and synthetic bone graft
substitutes. We estimate that synthetic bone graft substitutes are used in about
11% of the bone graft procedures performed annually in the United States, with
the remaining procedures divided approximately equally between autografts and
allografts.

     Autograft bone is bone harvested from another part of the patient's
skeleton, typically the iliac crest or hip. Once harvested, the bone is grafted
to the site of the bone deficit. Harvesting bone typically requires a second
surgical procedure, increases total operating time and expense, and can lead to
complications such as infection, chronic pain, deformity and excess blood loss.
Autograft bone can have both osteoinductive and osteoconductive properties.

     Allograft bone is bone obtained from a cadaver. There are numerous bone
banks that obtain cadaver tissue from regional donor centers. Once obtained, the
tissue is processed and configured into a variety of forms, including chips,
paste, blocks, gels and putties. Strict donor screening standards and testing
for infectious agents such as hepatitis B and HIV have significantly reduced the
possibility of implant rejection and disease transmission. Allograft bone can
have osteoconductive and osteoinductive properties, but we believe the growth
factors contained in allograft bone may be compromised in some of the commonly
used sterilization procedures.

     Synthetic bone graft substitutes are artificially produced and can be used
in place of autograft or allograft or mixed with autograft or allograft.
Synthetic bone graft substitutes are available in a wide range of forms,
including granules, blocks, strips, gels, slurries and injectable bone graft
cements. Synthetic bone graft substitutes generally have osteoconductive
properties.

     Growth Factors. Specific naturally-occurring proteins, called growth
factors, regulate bone generation by stimulating either the formation of new
bone cells or the replication of existing cells. We believe that the combination
of growth factors with bone grafts will be the next major advancement in bone
grafting. To derive growth factors, a number of methods are under development,
including recombinant DNA technology, gene therapy, extraction from cow bone and
advanced filtration technologies. With recombinant DNA technology, the desired
human growth protein gene is introduced into a production host, usually an
animal, bacterial or yeast cell, and the host makes the human protein along with
its own. These proteins are then concentrated and made into a usable form. Using
filtration methods, the human growth factor proteins are removed from the
patient's own blood. These proteins can be concentrated and combined with any of
the three major categories of bone graft.


                                       4

<PAGE>



Our Orthobiologic Products

     Bone Graft Substitutes. Our PRO OSTEON bone graft substitute products are
derived from the exoskeleton of two specific genera of coral and chemically
converted into a material with porosity, architecture and chemical composition
similar to that of human bone, using our proprietary manufacturing process. Due
to its structure, the graft provides a matrix that facilitates new bone
ingrowth. Our BONEPLAST bone void filler is a calcium sulfate (plaster-of-paris)
material that resorbs and is replaced with bone during the healing process. Our
line of osteoconductive bone graft products includes:

<TABLE>
<CAPTION>
                                                                                              U.S. Regulatory
         Product                     Description                   Indication                      Status
----------------------------  ----------------------------  ----------------------------  ---------------------------
<S>                           <C>                           <C>                          <C>
PRO OSTEON 500                Bone graft substitute.        Repair skeletal defects       PMA approved in 1992.
(hydroxyapatite)              500 micron pore size          in extremities.
                              blocks and granules.

PRO OSTEON 500R               Patented resorbable bone      Repair all skeletal           510(k) cleared in 1998.
(hydroxyapatite/calcium       graft substitute. 500         defects, including spine.
carbonate composite)          micron pore size blocks
                              and granules.

PRO OSTEON 200/               Bone graft substitute.        Repair all skeletal           510(k) cleared in 1985.
Interpore 200                 200 micron pore size          defects, including spine.
(hydroxyapatite)              blocks and granules.

PRO OSTEON 200R               Patented resorbable bone      Repair skeletal defects in    510(k) cleared in 2000.
(hydroxyapatite/calcium       graft substitute. 200         oral/maxillofacial
carbonate composite)          micron pore size blocks       areas.
                              and granules.

BONEPLAST (calcium            Fast resorbing, moldable      Fill voids in bone. Used      510(k) cleared in 1999.
sulfate)                      bone void filler.             in extremities, spine and
                                                            pelvis.
</TABLE>



     Our PRO OSTEON and BONEPLAST products compare favorably with autograft,
allograft and other synthetic bone grafts used today. We believe our products:

     .    Eliminate morbidity and cost associated with autograft harvesting;

     .    Eliminate disease transmission and host rejection risk;

     .    Require no special handling or storage conditions;

     .    Can be prepared simultaneously with surgery;

     .    Contain no fillers such as glycerol, which has been shown to have
          toxic effects; and

     .    Are easily shaped by surgeons to fill bone voids or defects.



                                       5

<PAGE>


     AGF (Autologous Growth Factors). AGF is a concentrate of growth factors
derived from platelets in a patient's blood which is used to encourage more
complete and rapid bone growth in bone defects. Our two key products used to
collect AGF are the UltraConcentrator(TM) Permeability Hemodialyzer and the
Automated Processor. Cleared for marketing by the FDA in the fourth quarter of
1998, these products are used to produce a concentrated growth factor gel from
platelets in the patient's own blood. Our AGF related products were commercially
launched in 1999.

     In the AGF collection process, blood from the patient is separated into
different component layers using a device called a cell washer, which is
routinely available in the operating room during spine fusion and revision total
joint replacement procedures. One of the layers, known as the "buffy coat,"
contains platelet-rich plasma and white blood cells. The buffy coat is processed
using our proprietary filtering technology which super-concentrates the
platelets and fibrinogen, producing a "cocktail" of growth factors, including
Platelet-Derived Growth Factor and Transforming Growth Factor Beta. With the
addition of thrombin, the fibrinogen contained in AGF is converted into fibrin,
giving AGF a gel-like consistency. AGF can be combined directly with a bone
graft material, such as our PRO OSTEON and BONEPLAST products, as well as
autograft and allograft, and placed at the bone graft site. The red cells and
plasma component layers from the cell washer are returned to the patient,
resulting in minimal blood loss.

     We believe that AGF provides the surgeon with the growth factors desired
for faster and more complete bone graft healing and that AGF may be preferred by
surgeons due to factors which include the following:

     .    Many surgeons prefer autologous solutions, such as AGF, that are
          derived from the patient's own tissues;

     .    AGF's gel-like consistency improves handling properties and fixes the
          bone graft material to the bone defect site;

     .    AGF is a "cocktail" of many cell-stimulating growth factors;

     .    Using the patient's own growth factors eliminates dosage concerns; and

     .    The cost of AGF is lower than that anticipated for recombinant
          products under development.

Minimally Invasive Surgery Market Overview

     Minimally invasive surgery is the term used to describe surgical procedures
that can be performed through very small surgical openings, thereby limiting the
amount of damage to tissues surrounding the surgical site. There is great
interest in identifying procedures within orthopedics that are conducive to
minimally invasive surgery techniques. To date, arthroscopic procedures,
particularly for the knee, have been the focus. However, it is believed that
spine procedures offer a broad opportunity for improved technique via the use of
minimally invasive surgery procedures. Within the spine market currently,
minimally invasive procedures are increasingly being used to address spine
fractures caused by osteoporosis, also known as vertebral compression fractures.
Osteoporosis is a systemic skeletal disease characterized by loss of bone mass
and microarchitectural deterioration of the bone tissue, with a consequent
increase in bone fragility and susceptibility to fracture. These fractures can
result in an increased risk of death, significant pain, reduced respiratory
function and impaired quality of life.

     It is estimated that there are approximately 700,000 vertebral compression
fractures in the United States annually, and approximately two-thirds go
undiagnosed or untreated. Of the patients who present with vertebral compression
fractures, approximately 200,000 to 300,000 annually are diagnosed and are
treated with marginal success using drugs, bed rest and bracing. A very small
portion undergo surgical procedures known as vertebroplasty, in which a
biocompatible reinforcing material is delivered into the fractured vertebra in
order to eliminate micro-motion of bone fragments for the relief of pain and to
provide strengthening of the vertebra. Historically, these procedures have been
performed primarily by interventional radiologists, but are increasingly being
performed by orthopedic surgeons and neurosurgeons.



                                       6

<PAGE>


Our Minimally Invasive Surgery Products.

     In July 2001, we acquired American OsteoMedix Corporation ("AOM") of
Leesburg, Virginia, a developer, manufacturer and marketer of systems which
facilitate the delivery of biocompatible materials into bone through small
incisions, a procedure referred to as osteoplasty. Initially, these products are
being used by surgeons in the treatment of vertebral compression fractures.

     .    CDO System. Our CDO System is designed to facilitate the delivery of
          biocompatible materials into bone through a small incision. The CDO
          System provides key benefits for surgeons and their patients,
          including enhanced diagnostic capabilities during the procedure,
          better control of material delivery, significantly reduced procedural
          times and shorter recovery time.

     .    LP/2/ System. Our LP/2/ System provides easy access to smaller bony
          anatomy for material delivery. Its low profile design enhances
          visualization for accurate placement and also facilitates the
          low-pressure delivery of viscous materials.

Research and Development.

     As of March 1, 2002, our research and development department consisted of
27 full-time employees. We also engage outside consultants and academic research
facilities for assistance with our new product development and will license
technology from third parties under appropriate circumstances. We plan to
continue to use outside resources for product research. We have agreements with
prominent spine surgeons, who assisted in the development of certain of our
spine systems, under which we pay royalties ranging from approximately 2% to 7%
of net revenues generated from the sale of certain products. Our expenditures
for research and development were $4.2 million in 1999, $5.3 million in 2000 and
$6.7 million in 2001.

     Additional spinal implant and orthobiologic products which we currently
have under development include:

     .    Allograft Putty. Allograft putties are made by combining demineralized
          allograft powder with a carrier material and have gained wide surgeon
          acceptance in recent years. We have developed a unique, proprietary
          carrier formulated from a phospholipid that we believe may exhibit
          characteristics superior to carriers found in other allograft putties.
          We are working with a tissue bank partner for the production of this
          product.

     .    Artificial Disc. Our simple patented design, with no moving parts,
          could allow a surgeon to replace a diseased disc while maintaining
          motion of the spine in the affected segment, eliminating the need for
          fusion. We began animal studies on this device in 2001.

     .    Use of BONEPLAST/PRO OSTEON 200R for Vertebroplasty. In vertebroplasty
          procedures, physicians generally insert bone cement into the vertebral
          body to eliminate micro-motion of bone fragments and thereby reduce
          pain. However, bone cement has certain undesirable characteristics and
          we believe that BONEPLAST combined with our PRO OSTEON 200R may be
          uniquely suitable for this procedure. Animal trials commenced in 2001.

     .    Polymer-reinforced PRO OSTEON Material. We have development efforts
          underway for a polymer-reinforced PRO OSTEON material. We believe that
          increasing the strength of our resorbable version of PRO OSTEON in
          various configurations, combined with AGF, holds promise for potential
          use as a natural, resorbable alternative to titanium and composite
          spinal implants currently available in the market. Such a product
          would be several years from the market, if developed at all. Animal
          trials commenced in 2001.


                                       7

<PAGE>


     .    AGF Technology Upgrade. The current process for collecting AGF from
          the patient's blood requires the use of a cell washer and involves
          numerous procedural steps. We are in the final stages of developing an
          upgraded processing system that will eliminate the reliance on a cell
          washer, substantially simplify the process by eliminating a
          significant number of processing steps, and permit the option of
          producing smaller quantities of AGF. We expect to introduce this new
          system late in 2002.

     We currently have a number of prospective randomized clinical studies
underway at a variety of institutions to demonstrate the efficacy of our AGF
technology for multiple indications.

Intellectual Property

     As part of our ongoing research, development and manufacturing activities,
we have a policy of seeking patent protection. Patents relating to particular
products, uses or procedures, however, do not preclude other manufacturers from
employing alternative processes or from successfully marketing substitute
products. We believe that although patents often are necessary to protect our
technology and products, the lengthy FDA approval process and certain
manufacturing processes are more significant barriers to entry. Moreover, much
of the proprietary technology and manufacturing processes developed by us reside
in our key scientific and technical personnel and such technology and processes
are not easily transferable to other scientific and technical personnel. The
loss of the services of key scientific, technical and manufacturing personnel
could have a material adverse effect on our business and results of operations.
In addition, we are currently, and in the future may be, involved in patent
litigation. For example, we are currently involved in ongoing patent litigation
against DePuy Acromed, Inc., a Johnson and Johnson company, and Biederman Motech
GmbH. See "Item 3 - Legal Proceedings."

     Spine Products. We own eleven U.S. patents related to various aspects of
our spine products, including the bone anchor, the rod/anchor interface,
instrumentation, transverse connectors, bone stabilization plate and
three-dimensional geometric structure. However, one of our patents, U.S. Patent
No. 5,466,237, was recently found to be partially invalid. See "Item 3 - Legal
Proceedings." We have two U.S. patents pending concerning enhancements to our
SYNERGY Spinal System and for several new products.

     Orthobiologic Products. We own eleven U.S. patents related to our
orthobiologic products. Of these, two relate to our PRO OSTEON 500R resorbable
bone graft substitute, and four are for our AGF technology. We have four U.S.
patents pending relating to several new products.

     Minimally Invasive Surgery Products. We have one U.S. patent pending
related to the CDO system.

     We require our employees, consultants and advisors to execute nondisclosure
agreements in connection with their employment, consulting or advisory
relationships with us. We also require our employees, consultants and some
advisors to agree to disclose and assign to us all inventions conceived during
the work day, using our property or which relate to our business. Despite any
measures taken to protect our intellectual property, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary. Finally, our competitors may independently develop
similar technologies.

     We own various trademarks protecting our corporate identity and product
names.

Customers, Sales and Marketing

      The decision to use our products is made by the orthopedic surgeon or the
neurosurgeon. We direct our domestic marketing efforts to the approximately
14,000 practicing orthopedic surgeons in the United States in private practice,
hospitals and orthopedic treatment centers. Of the approximately 14,000
practicing orthopedic surgeons, we estimate there are over 2,000
fellowship-trained spine surgeons. In addition to the orthopedic surgeons, we
estimate that there are over 1,000 neurosurgeons performing spine fusion
procedures that utilize implants.



                                       8

<PAGE>


     Our domestic sales organization consists mostly of independent agents. As
of March 1, 2002, we had contracts with 40 independent agencies which employed
approximately 200 sales representatives and we employed one direct sales
representative. The domestic sales organization is managed by a Vice President
of North American Sales and five area vice presidents who are responsible for
managing the independent agencies located in their area. We also have 13 area
managers who provide technical product support to customers and agencies in
their area. We invoice hospitals directly, generally at list prices, and pay
commissions to the agencies and direct sales representative. We provide
consignment inventories to our independent agencies, direct sales representative
and some hospitals. We select agency organizations and direct sales
representatives for their expertise in spinal implant, orthopedic or medical
device sales, their reputation within the surgeon community and their sales
coverage within a geographic area. Each agency organization and direct sales
representative is given an exclusive sales territory for some or all of our
products and is subject to periodic performance reviews. In addition, each new
independent sales agency and direct sales representative goes through training
programs before initiating sales efforts for our products. We also require each
independent agency and direct sales representative to attend periodic sales and
product training.

     Outside of the United States, we distribute products only through
independent distributors. We have a Vice President of International Sales, a
Latin America sales manager and a European business liaison and have established
distribution arrangements with 43 distributors in 35 countries. Our
international sales represented approximately 22% of sales in 1999, 20% of sales
in 2000 and 22% of sales in 2001. Sales to our international customers are
denominated in U.S. dollars.

     In the United States, there are no significant customer concentrations, as
we invoice hospitals directly for product used or shipped. However, in the
international markets, we have two significant distributors that on a combined
basis accounted for approximately 34.6% of our 2001 international sales and 7.7%
of our 2001 worldwide sales.

     In order to improve shipping efficiencies and service to our international
customers, in January 1998 we entered into an agreement with a contract
warehouse in the Netherlands to ship bone graft products to customers in certain
countries outside of North America.

     We participate in over two dozen professional meetings including the
American Academy of Orthopaedic Surgeons Meeting, the North American Spine
Society Meeting and the Congress of Neurological Surgeons. We also participate
in scientific presentations and professional seminars at hospitals and provide
funding for surgeon symposia from time to time.

Third-Party Reimbursement

     We expect that sales volumes and prices of our products will continue to be
dependent in large part on the availability of reimbursement from third-party
payors. In the United States, our products are purchased by hospitals that are
reimbursed for the devices provided to their patients by third-party payors,
such as governmental programs (e.g., Medicare and Medicaid), private insurance
plans and managed care programs. These third-party payors may deny reimbursement
if they determine that a device used in a procedure was not used in accordance
with cost-effective treatment methods, as determined by the third-party payor,
or was used for an unapproved indication. Also, third-party payors are
increasingly challenging the prices charged for medical products and services.
In international markets, reimbursement and healthcare payment systems vary
significantly by country and many countries have instituted price ceilings on
specific product lines. There can be no assurance that our products will be
considered cost-effective by third-party payors, that reimbursement will be
available or, if available, that the third-party payors' reimbursement policies
will not adversely affect our ability to sell our products profitably.


                                       9

<PAGE>



     Particularly in the United States, third-party payors carefully review, and
increasingly challenge, the prices charged for procedures and medical products.
In addition, an increasing percentage of insured individuals are receiving their
medical care through managed care programs, which monitor and often require
pre-approval of the services that a member will receive. Many managed care
programs are paying their providers on a capitated basis, which puts the
providers at financial risk for the services provided to their patients by
paying them a predetermined payment per member per month. The percentage of
individuals covered by managed care programs is expected to grow in the United
States over the next decade.

     We believe that the overall escalating cost of medical products and
services has led to, and will continue to lead to, increased pressures on the
healthcare industry to reduce the costs of products and services. There can be
no assurance that third-party reimbursement and coverage will be available or
adequate, or that future legislation, regulation, or reimbursement policies of
third-party payors will not adversely affect the demand for our products in
development or our ability to sell these products on a profitable basis. The
unavailability or inadequacy of third-party payor coverage or reimbursement
could have a material adverse effect on our business, operating results and
financial condition.

Manufacturing

     Spine Products. We contract with outside vendors for the manufacture of our
spine products, which are fabricated from medical grade stainless steel or
titanium according to our specifications. Following the receipt of products at
our facility, we conduct inspection, packaging and labeling operations. The
majority of our current spine products are distributed in a non-sterile
condition, which is the industry standard for implant systems such as our
SYNERGY and C-TEK.

     Our GEO Structure products are fabricated from cast titanium using the lost
wax method. We manufacture the wax models using rapid prototype equipment at our
facility. The wax models are then delivered to contract casting vendors that
manufacture the implants. Following the receipt of GEO Structure products at our
facility, we conduct inspection, packaging and labeling operations. Our GEO
Structure products may be packaged sterile or non-sterile.

     Orthobiologic Products. Coral is the primary raw material used to
manufacture our PRO OSTEON products. The coral used in our products is sourced
from two genera located in a wide variety of geographic locations. Our source
for coral has been the tropical areas of the Pacific and Indian Oceans. We
believe we have an adequate supply of coral for the foreseeable future. Coral is
covered under an international treaty entitled Convention on International Trade
of Endangered Species of Wild Fauna and Flora, which regulates the import/export
of raw coral and products derived therefrom in approximately 140 nations around
the world. To date, the limitations imposed by this treaty have not
significantly affected our ability to source raw coral, however, conditions in
countries controlling the export of coral have recently had a negative effect on
our ability to source raw coral. The manufacturing process for our PRO OSTEON
line of bone graft substitute products involves coral qualification and cutting,
hydrothermal conversion, testing, packaging and sterilization of the product,
all of which, with the exception of sterilization, are performed at our
facilities.

     Some of the products and materials supplied by our vendors are currently
sole-sourced, but we believe that we could locate alternative vendors for supply
of these components. However, the UltraConcentrator, one of our products used to
collect AGF, is manufactured under an exclusive supply agreement with a vendor
that itself has a sole source of supply of the contained filter material.
Although the filter material is not readily available through alternative
sources, we have a several year supply of the material in inventory and we
believe there are suppliers that could supply alternate materials which may have
equivalent function. In the event that a re-engineering of the product were
necessary due to an interruption in supply from our current vendor, delays in
product availability could occur and significant costs could be incurred, either
of which could have a material adverse effect on our operations.

     Minimally Invasive Surgery Products. We contract with outside vendors for
the manufacture of components of our minimally invasive surgery products.
Following the receipt of products at our facility, we conduct inspection,
packaging and labeling operations. For products distributed in a sterile
package, sterilization is performed by contract vendors.


                                       10

<PAGE>


Competition

     Spinal Implant Market. Many companies compete in the spinal implant market
and competition is intense. We believe that our largest competitors in the
United States offering spinal implants are Medtronic Sofamor Danek USA, DePuy
AcroMed, Inc., a Johnson & Johnson company, and SYNTHES-STRATEC, Inc., each of
which has substantially greater sales and financial resources than we do.
Medtronic Sofamor Danek, in particular, has a broader spinal implant line. Other
companies have developed and are marketing products based on technologies that
are different from ours, including spinal implants designed to be used with
minimally invasive or laparoscopic surgery, and allograft bone dowels.

     Orthopedic Bone Graft Substitute Market. Our synthetic bone products
compete principally with natural bone obtained from autograft procedures,
considered the physician's "gold standard," with allograft bone obtained from
cadavers and with other synthetic bone products. Competitive bone substitute
products include: Grafton(R) demineralized bone products from Osteotech,
DynaGraft demineralized bone products from GenSci Regeneration Technologies,
OsteoSet(TM) calcium sulfate from Wright Medical Technology, Vitoss(TM) from
Orthovita, as well as other bone substitute products used in non-orthopedic
applications. Several other companies are pursuing additional synthetic bone
graft materials for orthopedic applications which could ultimately compete with
our synthetic bone graft products in the United States.

     Growth Factors. DePuy AcroMed is marketing under the Symphony(TM) tradename
a system which is competitive to AGF. We believe that the sales efforts for
Symphony have negatively affected our sales of AGF-related products. In
addition, there are several companies introducing systems that produce gel
products which may compete with AGF. There is significant development activity
ongoing that, if successful, would potentially produce other products
competitive with our AGF technology. Stryker Corporation has distribution rights
to a recombinant human bone morphogenetic protein called OP-1. Early in 2001,
the FDA denied approval of its PMA application for failing to show statistical
equivalence compared to autograft controls in tibial non-unions. In October
2001, the FDA granted Humanitarian Device Exemption status for OP-1 as an
alternative to autograft for long-bone non-union fractures. Medtronic Sofamor
Danek has a recombinant human bone morphogenetic protein (rhBMP-2) called
InFUSE(TM) for which a U.S. advisory panel has recommended FDA approval of the
PMA application for use in treating degenerative disc disease.

     Minimally Invasive Surgery Products. Several products compete with our
minimally invasive surgery products including competitive offerings by Kyphon,
Inc. and Parallax Medical, Incorporated as well as the traditional large gauge
needle surgical technique.

     We compete in all of our markets primarily on the basis of product
performance and price, as well as customer loyalty and service.

Government Regulation

     Our products are regulated by the FDA under the federal Food, Drug and
Cosmetic Act, as well as other federal, state and local governmental authorities
and similar regulatory agencies in other countries. The FDA permits commercial
distribution of a new medical device only after the FDA has cleared a 510(k)
premarket notification or has approved a Premarket Approval application for such
medical device. In general, the FDA will clear marketing of a medical device
through the 510(k) premarket notification process if it is demonstrated that the
new product is substantially equivalent, in terms of safety and intended use to
certain 510(k) cleared products which are already commercially available and
legally sold on the market.


                                       11

<PAGE>



     The Premarket Approval process is lengthier and more burdensome than the
510(k) premarket notification process. The Premarket Approval process generally
requires detailed animal and clinical studies, as well as manufacturing data and
other information. If clinical studies are required by the FDA, an
Investigational Device Exemption is also required. An Investigational Device
Exemption restricts the investigational use of the device to a limited number of
investigational sites, investigators and patients. Its purpose is to prove
safety and efficacy of the device. FDA approval of a Premarket Approval
application indicates that the FDA concurs that a device has been scientifically
proven, through the completion and submission of animal data, a completed
Investigational Device Exemption and other pertinent information, to be safe and
effective for its intended use.

Spine Products

     Our SYNERGY Spinal System received 510(k) marketing clearance from the FDA.
We received 510(k) clearance from the FDA to market the anterior portion of the
SYNERGY Spinal System in October 1994 and for the posterior portion of the
system in July 1995. In September 1996, we developed a titanium version of the
SYNERGY Spinal System for international distribution. We received FDA marketing
clearance for the anterior portion of the titanium version in October 1995 and
the posterior portion in January 1997.

     In March 2000, the Food and Drug Administration approved a Humanitarian
Device Exemption (HDE) for the cervical version of our corpectomy cage, the TPS
Telescopic Plate Spacer. An HDE is designed to encourage the discovery and use
of devices intended to benefit patients in the treatment or diagnosis of
diseases or conditions that affect or are manifested in fewer than 4,000
individuals in the United States per year. In the case of the TPS, the approved
indication is for the replacement of normal body structures following a
vertebrectomy or corpectomy of the spine for metastatic disease in the cervical
or cervical-thoracic spine. We received FDA 510(k) clearance to market the
Telescopic Plate Spacer Thoracolumbar (TPS-TL) in November 2001.

     In October 2000, we received FDA 510(k) clearance to market our C-TEK
Anterior Cervical Plate System.

     In August 2001, we received FDA 510(k) clearance to market our oval
configuration GEO Structure spinal implant. An FDA 510(k) clearance for the
rectangular configuration was received in February 2002.

Orthobiologic Products

     In October 1992, we received FDA approval to market PRO OSTEON 500 for
certain defects in the wide part of long bones. We subsequently received FDA
approval to market it in granular forms and a wide variety of block
configurations up to 30 cc's in total volume, and for additional indications
including the treatment of cysts and tumors in long bones. Our PRO OSTEON 200
and Interpore 200 were cleared for marketing for certain oral surgery,
periodontal defects, craniofacial and orthognathic indications through 510(k)
premarket notifications.

     In July 1997, the FDA cleared the use of a competitive synthetic bone graft
substitute product with a 510(k). Prior to clearance of this device, companies
were required to obtain marketing approval from the FDA for bone graft
substitutes via the Premarket Approval process. Other bone graft substitute
products have since been obtained through the less burdensome 510(k) premarket
notification process, which has increased competition. In September 1998, we
received 510(k) clearance from the FDA for our PRO OSTEON 500R resorbable bone
graft substitute product. The approved indications include use in bony voids or
gaps of the skeletal system, such as the extremities, spine and pelvis. In
December 2000, we received 510(k) clearance from the FDA for our PRO OSTEON 200R
resorbable bone graft substitute product.

     In September 1999, we received FDA 510(k) clearance for our BONEPLAST bone
void filler for use in the extremities, spine and pelvis.

     In December 1998, we received FDA 510(k) clearances for the two key
products in the AGF system, the UltraConcentrator Permeability Hemodialyzer and
the Automated Processor.



                                       12

<PAGE>


Minimally Invasive Surgery Products

     Our minimally invasive surgery products fall within the Class I category of
medical devices as determined by the FDA. Class I contains those devices which
generally do not present an unreasonable risk of illness or injury to the
patient and are therefore subject only to the general controls authorized under
the FDA regulations. No premarket approval or premarket notification submissions
are required for Class I devices.

     Other FDA requirements govern product labeling and prohibit a manufacturer
from marketing an approved device for unapproved applications. If the FDA
believes that a manufacturer is not in compliance with the law, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the manufacturer, its
officers and employees.

     We are registered as a medical device manufacturer with the FDA, with state
agencies such as the Food and Drug Branch of the California Department of Health
Services and with the European Community. These agencies inspect our facilities
from time to time to determine whether we are in compliance with various
regulations relating to medical device manufacturing, including the FDA's
Quality System Regulations and ISO 9001/EN46001/ISO 13485, which govern design,
manufacturing, testing, quality control, sterilization and labeling of medical
devices. We believe we are in compliance with the regulations established by
these agencies applicable to our business. The European Community Notified Body,
the FDA and the California Department of Health Services have inspected our
manufacturing facilities and quality assurance procedures in the past and we
expect them to continue to do so in the future.

     With respect to our bone graft substitute products, we must also comply
with the requirements of the Convention on International Trade of Endangered
Species of Wild Fauna and Flora, or CITES. This is an international agreement
signed by approximately 140 nations which regulates the import and export of
products which are derived from endangered wildlife. Although the coral we use
is not an endangered species, all harvested coral is subject to regulation under
CITES. As a result, we must register and obtain licensure from the U.S.
Department of Fish and Wildlife for both the import of raw coral and the export
of finished product. We maintain a multi-year supply of coral to minimize the
risk of supply interruptions. Because each shipment of product exported outside
of the United States or its possessions requires individual permitting, and also
to improve shipping efficiencies and service to our international customers, we
entered into an agreement with a contract warehouse in the Netherlands for the
purpose of international distribution of our products.

     We must also comply with registration requirements of foreign governments
and with import and export regulations when distributing our products to foreign
nations. Each foreign country's regulatory requirements for product approval and
distribution are unique and may require the expenditure of substantial time,
resources and effort to obtain and maintain approvals for marketing. In
September 1995, we received approval to use the "CE" mark for our entire line of
orthopedic and oral/maxillofacial synthetic bone graft materials. We received
approval to use the "CE" mark for our spinal implant systems in 1998, and
applied the "CE" mark to our minimally invasive surgery products in 2001. The CE
mark indicates that the products are approved for sale within 18 countries in
the European Community and European Free Trade Association and that we are in
compliance with the ISO 9001 and EN 46001 standards which govern medical device
manufacturers that are marketing products in Europe. The CE mark is now also
accepted by several countries outside of the European Community. We received our
ISO 13485 certification in 2001 which allows us to continue exportation to
Canada. The ISO 13485 standard is designed for medical devices and will
eventually replace ISO 9001 and EN 46001 standards for Europe.

Employees

     As of March 1, 2002, we had 144 full-time employees, of whom 46 were
engaged in marketing and sales, 34 in manufacturing, 20 in regulatory affairs
and quality assurance, 17 in general administration and finance and 27 in
research and development. None of these employees is represented by a union, and
we have never experienced a work stoppage. We consider our relations with our
employees to be good.


                                       13

<PAGE>


Certain Business Considerations

     Investors are cautioned that certain statements contained in or
incorporated by reference into this Annual Report on Form 10-K, or which are
otherwise made by us or on our behalf are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements that are predictive in nature, which depend upon
or refer to future events or conditions, which include words such as "believes,"
"plans," "anticipates," "estimates," "expects" or similar expressions. In
addition, any statements concerning future financial performance, ongoing
business strategies or prospects, and possible future actions, which may be
provided by our management, are also forward-looking statements. Forward-looking
statements are based on current expectations and projections about future events
and are subject to risks, uncertainties, and assumptions about our company,
economic and market factors and the industry in which we do business, among
other things. These statements are not guaranties of future performance and we
undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise.

     Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors. Factors
that could cause our actual performance and future events and actions to differ
materially from such forward-looking statements, include, but are not limited to
those discussed below and elsewhere in this Annual Report on Form 10-K.

We are dependent on a few products which may be rendered obsolete.

     A majority of our revenues currently comes from Synergy and Pro Osteon
sales. There can be no assurance that we will be successful in increasing sales
of our current product offering. Additionally, there can be no assurance that
our efforts to develop new products will be successful. If our development
efforts are successful, there can be no assurance that we will be successful in
marketing and selling our new products. Moreover, our competitors may develop
and successfully commercialize medical devices that directly or indirectly
accomplish what our products are designed to accomplish in a superior and less
expensive manner. If our competitors' products prove to be more successful than
ours, our products could be rendered obsolete. As a result, we may not be able
to produce sufficient sales to maintain profitability.

If we fail to compete successfully against existing or potential competitors,
our operating results may be adversely affected.

     Our principal global competitors with respect to our spinal implant product
line are Medtronic Sofamor Danek USA, DePuy AcroMed, Inc., a Johnson & Johnson
company, and SYNTHES-STRATEC, Inc. Our principal global competitors with respect
to our orthobiologic products include DePuy AcroMed, Osteotech, Inc., GenSci
Regeneration Technologies and Wright Medical Technology. Our principal
competitor with respect to our minimally invasive surgery products is Kyphon
Inc., a private company. Many of our competitors have broader product lines than
we do. Many potential customers have relationships with our competitors that
could make it difficult for us to continue to penetrate the markets for our
products. In addition, many of our competitors have significantly greater
resources than we do. Accordingly, they could substantially increase the
resources they devote to the development and marketing of products that are
competitive with ours.

We may not be able to develop new products that will be accepted by the market.

     Our future growth will be dependent on our ability to develop and introduce
new products, including enhancements to our existing products. We cannot assure
you that we will be able to successfully develop or market new products or that
any of our future products will be accepted by our customers. If we do not
develop new products in time to meet market demand or if there is insufficient
demand for these products, our revenues and profitability may be adversely
affected. In addition, we have spent and expect to continue to spend significant
cash on the development, product launch and continued marketing of new products
and if there is insufficient demand for these new products, our cash flow could
suffer and our liquidity would be adversely affected.



                                       14

<PAGE>


The long-term efficacy and market acceptance of AGF is uncertain.

     Because our AGF related products were introduced under a 510(k) clearance,
we lack long-term clinical data regarding the efficacy and long-term results of
AGF. To date, we have completed no long-term clinical studies of AGF. If
long-term studies or clinical experience indicate that procedures involving AGF
do not provide patients with improved clinical outcomes, anticipated sales of
our AGF related products may never materialize. Our success in selling our AGF
related products will depend, in large part, on the medical community's
acceptance of AGF. The medical community's acceptance of AGF will depend upon
our ability to demonstrate the efficacy of AGF and its advantages, favorable
clinical performance and cost-effectiveness. The medical community's acceptance
of AGF will also depend upon our ability to introduce a new processing system
for AGF that is less complex. We cannot predict whether the medical community
will accept AGF or, if accepted, the extent of its use. If long-term studies or
clinical experience indicate that AGF causes negative effects, we could be
subject to significant liability. Our strategy to increase sales of AGF is to
market these products primarily to our spinal implant customers. There is no
assurance that the strategy will work, however, and no assurance that sales of
our AGF related products will increase.

We face risks related to the upgrading and expansion of our distribution
network.

     We expect to continue to rely on independent agents for the domestic
distribution of both orthobiologic and spine products. Independent commissioned
sales agents may represent other medical devices for a variety of manufacturers
and may not dedicate enough time or attention to selling our products.
Furthermore, we expend significant resources to train and educate new
independent agents about our products and our marketing programs. Our ability to
recruit independent sales agents has been aided by some of our competitors'
replacement of independent agents with direct sales representatives. However,
our competitors may not continue to utilize direct sales representatives and we
can therefore give no assurance that we will continue to be able to attract new
or retain our current independent sales agents. There can be no assurance that
we will be able to develop an effective distribution network or that our sales
force will be able to continue to increase sales or maintain current sales
levels of our products.

Product introductions or modifications may be delayed or canceled as a result of
the FDA regulatory process, which could cause our sales to decline.

     The medical devices we manufacture and market are subject to rigorous
regulation by the FDA and numerous other federal, state and foreign governmental
authorities. Our failure to comply with such regulations could lead to the
imposition of injunctions, suspensions or loss of regulatory approvals, product
recalls, termination of distribution, or product seizures. In the most egregious
cases, criminal sanctions or closure of our manufacturing facility are possible.
The process of obtaining regulatory approvals to market a medical device,
particularly from the FDA, can be costly and time-consuming, and there can be no
assurance that such approvals will be granted on a timely basis, if at all. The
regulatory process may delay the marketing of new products for lengthy periods
and impose substantial additional costs or it may prevent the introduction of
new products altogether. In particular, the FDA permits commercial distribution
of a new medical device only after the FDA has cleared a 510(k) premarket
notification or has approved a Premarket Approval application, or PMA, for such
device. The FDA will clear marketing of a medical device through the 510(k)
process if it is demonstrated that the new product is substantially equivalent
to other 510(k)-cleared products. The PMA approval process is more costly,
lengthy and uncertain than the 510(k) premarket notification process. There can
be no assurance that any new products we develop will be subject to the shorter
510(k) clearance process and therefore significant delays in the introduction of
any new products that we develop may occur. We anticipate that our products that
are in final development will be eligible for the 510(k) premarket notification
process. If the FDA does not clear marketing of our products in final
development through the 510(k) clearance process, we will be forced to comply
with the PMA approval process in order to obtain FDA approval for these
products. If we choose to go through the PMA approval process, there will be
significant costs and delays in the introduction of our new products, if they
are approved at all. Moreover, foreign governmental authorities have become
increasingly stringent and we may be subject to more rigorous regulation by
foreign governmental authorities in the future. Any inability or failure of our
foreign independent



                                       15

<PAGE>


distributors to comply with the varying regulations or the imposition of new
regulations could restrict such distributors' ability to sell our products
internationally and thereby adversely affect our business. All products and
manufacturing facilities are subject to continual review and periodic inspection
by the FDA. The discovery of previously unknown problems with our company or our
products or facilities may result in product labeling restrictions, recall, or
withdrawal of the products from the market. In addition, the FDA actively
enforces regulations prohibiting the promotion of medical devices for unapproved
indications. If the FDA determines that we have marketed our products for
off-label use, we could be subject to fines, injunctions or other penalties.

We may be subject to product liability claims and our limited product liability
insurance may not be sufficient to cover the claims, or we may be required to
recall our products.

     We manufacture medical devices that are used on patients in surgical
procedures, and we may be subject to product liability claims and product
recalls. The spinal implant industry has been historically litigious and we face
an inherent business risk of financial exposure to product liability claims.
Since our spinal products are implanted in the human body, manufacturing errors
or design defects could result in injury or death to the patient, and could
result in a recall of our products and substantial monetary damages. Any product
liability claim brought against us, with or without merit, could result in an
increase to our product liability insurance premiums or our inability to secure
coverage in the future. We would also have to pay any amount awarded by a court
in excess of our policy limits. In addition, any recall of our products, whether
initiated by us or by a regulatory agency, may result in adverse publicity for
us that could have a material adverse effect on our business, financial
condition and results of operations. Our product liability insurance policies
have various exclusions, and we may be subject to a product liability claim or
recall for which we have no insurance coverage, in which case we may have to pay
the entire amount of the award or costs of the recall. Finally, product
liability insurance is expensive and may not be available in the future on
acceptable terms, or at all.

We may face challenges to our patents and proprietary rights.

     We rely on a combination of patents, trade secrets and nondisclosure
agreements to protect our proprietary intellectual property. Our patent
positions and those of other medical device companies are uncertain and involve
complex and evolving legal and factual questions. There can be no assurance that
pending patent applications will result in issued patents, that patents issued
to or licensed by us will not be challenged or circumvented by competitors or
that such patents will be found to be valid or sufficiently broad to protect our
technology or to provide us with any competitive advantage. For example, one of
our patents, U.S. Patent No. 5,466,237, was recently found to be partially
invalid. See "Item 3 - Legal Proceedings." Third parties could also obtain
patents that may require licensing for the conduct of our business, and there
can be no assurance that the required licenses would be available. We also rely
on nondisclosure agreements with certain employees, consultants and other
parties to protect, in part, trade secrets and other proprietary technology.
There can be no assurance that these agreements will not be breached, that we
will have adequate remedies for any breach, that others will not independently
develop substantially equivalent proprietary information or that third parties
will not otherwise gain access to our trade secrets and proprietary knowledge.
If our intellectual property is not adequately protected, our competitors could
use the intellectual property that we have developed to enhance their products
and compete more directly with us, which could result in a decrease in our
market share and profits.

     The medical product industry is characterized by frequent and substantial
intellectual property litigation and competitors may resort to intellectual
property litigation as a means of competition. Intellectual property litigation
is complex and expensive, and the outcome of such litigation is difficult to
predict. Any future litigation, regardless of the outcome, could result in
substantial expense and significant diversion of the efforts of our technical
and management personnel. Litigation may also be necessary to enforce our
patents and license agreements, to protect our trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others. For example, we are currently involved in ongoing patent litigation
against DePuy Acromed, Inc., a Johnson and Johnson company, and Biederman Motech
GmbH. An adverse determination in any such proceeding could subject us to
significant liabilities to third parties, or require us to seek licenses from
third parties or pay royalties that may be substantial. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure



                                       16

<PAGE>


to obtain necessary licenses could prevent us from manufacturing or selling
certain of our products which in turn would have a material adverse effect on
our business, financial condition and results of operations.

Possible denial of third-party reimbursement could have a material adverse
effect on our future business, results of operations and financial condition.

     In the United States, our products are purchased by hospitals, who are
reimbursed for the devices provided to their patients by third-party payors,
such as governmental programs (e.g., Medicare and Medicaid), private insurance
plans and managed care programs. These third-party payors may deny reimbursement
if they determine that a device used in a procedure was not used in accordance
with cost-effective treatment methods, as determined by the third-party payor,
or was used for an unapproved indication. Also, third-party payors are
increasingly challenging the prices charged for medical products and services.
In addition, we believe the increasing emphasis on managed care in the U.S. may
put pressure on the prices and usage of our products, which may adversely affect
product sales. In international markets, reimbursement and healthcare payment
systems vary significantly by country and many countries have instituted price
ceilings on specific product lines. There can be no assurance that our products
will be considered cost-effective by third-party payors, that reimbursement will
be available or, if available, that the third-party payors' reimbursement
policies will not adversely affect our ability to sell our products profitably.

We are dependent on our suppliers and the loss of any of them could adversely
affect our business.

     We do not manufacture the components for our spinal implants or instruments
or minimally invasive surgery products; rather, we are dependent upon several
suppliers for the manufacturing of such components. Also, the UltraConcentrator,
one of our products used to collect AGF, is manufactured under an exclusive
supply agreement with a vendor that itself has a sole source of supply for
filter material, a key component of the UltraConcentrator. In the event that we
are unable to obtain components for any of our products, or obtain such
components on commercially reasonable terms, we may not be able to manufacture
or distribute our products on a timely and competitive basis, or at all. Any
delays in product availability or costs incurred in locating alternative
suppliers could have a material adverse effect on our operations.

The harvesting of coral is subject to regulation which could affect our ability
to obtain sufficient quantities of coral in the future.

     The harvesting and import of the coral used for our coral-based
orthobiologic products must comply with the requirements of the Convention on
International Trade of Endangered Species of Wild Fauna and Flora. As a result,
we must register and obtain licensure from the U.S. Department of Fish and
Wildlife for both the import of raw coral and the export of finished product. In
the future, regulations could make the import or export of coral or
coral-derived products prohibitive and could interrupt our ability to supply
product. We cannot assure you that our supply of raw coral is sufficient, that
we will be able to obtain sufficient quantities of coral in the future or that
future regulations will not prohibit its use altogether.

Our business could be materially adversely impacted by risks inherent in
international markets.

     In 2001, approximately 22% of our sales were generated outside the United
States. We expect that such sales will continue to account for a significant
portion of our revenue in the future. Our international sales subject us to
other inherent risks, including the following:

     .    fluctuations in currency exchange rates;

     .    regulatory, product approval and reimbursement requirements;

     .    tariffs and other trade barriers;

     .    greater difficulty in accounts receivable collection and longer
          collection periods;



                                       17

<PAGE>




     .    difficulties and costs of managing foreign distributors;

     .    reduced protection for intellectual property rights in some countries;

     .    burdens of complying with a wide variety of foreign laws;

     .    the impact of recessions in economies outside the United States;

     .    political and economic instability; and

     .    seasonal reductions in business activity during the summer months in
          Europe and other parts of the world.

     If we fail to successfully market and sell our products in international
markets, our business, financial condition, results of operations, and cash
flows could be materially and adversely affected.

Future acquisitions could adversely affect our operations or financial results.

     From time to time, we consider acquisition of technology product lines or
businesses to supplement our current product offering. Any such future
acquisitions involve risks such as the following:

     .    we may be exposed to unknown liabilities of acquired companies;

     .    our acquisition and integration costs may be higher than we
          anticipated and may cause our quarterly and annual operating results
          to fluctuate;

     .    we may experience difficulty and expense in assimilating the
          operations and personnel of the acquired businesses, disrupting our
          business and diverting management's time and attention; and

     .    our relationships with key customers of acquired businesses may be
          impaired, due to changes in management and ownership of the acquired
          businesses.

Item 2.  Properties

     We are headquartered in Irvine, California where we lease a 35,528 square
foot facility. The annual average lease expense over the ten year term of the
lease, which expires January 31, 2003, is $387,000. The lease provides a right
to extend the term for an additional five years at the fair market lease rate of
the facility on the extension date, but not less than the rate we paid during
the month immediately preceding the commencement of the extension period. We
also lease three additional facilities in Irvine, California with a total square
footage of 7,900 which provides for additional warehousing, manufacturing,
laboratory, office and prototype machine shops space. We lease a 2,700 square
foot warehouse facility in Santa Ana, California. We lease a sales office with
approximately 200 square feet located in Miami, Florida. We lease in Leesburg,
Virginia a 4,200 square foot facility providing space for engineering and
marketing for our minimally invasive surgery products business. We believe our
current facilities in Irvine may not be adequate to serve our operational needs
through 2002, but we believe that additional space will be available as needed
during the year.


                                       18

<PAGE>


Item 3.  Legal Proceedings

     On September 5, 2000, our wholly-owned subsidiary, Cross Medical Products,
Inc. ("Cross"), filed suit in the U.S. District Court, Central District of
California, against DePuy AcroMed, Inc., a Johnson & Johnson company and
Biedermann Motech GmbH, which alleges that DePuy AcroMed has infringed and
continues to infringe Cross' U.S. Patent Nos. 5,466,237 and 5,474,555. These
patents relate to screw technology embodied in certain components of our SYNERGY
Spinal System. The Complaint seeks damages for willful past and continuing
infringement of the patents. The Complaint also seeks a declaratory judgment
against DePuy AcroMed and Biedermann Motech that Cross is not infringing
Biedermann Motech's patent no. 5,207,678. DePuy AcroMed has responded to the
Complaint alleging that Cross' patents are invalid and unenforceable, and
alleging that it does not infringe.

     On May 21, 2001, the Court dismissed Cross' declaratory judgment claim,
ruling that Biedermann Motech is not subject to personal jurisdiction in
California and is indispensable to the claim.

     On January 30, 2002, the Court granted Cross' motion for summary judgment
of infringement of certain claims of Cross' `237 Patent. On February 11, 2002,
the Court granted Cross' motion for summary judgment of infringement of certain
claims of Cross' `555 Patent. On March 20, 2002, the Court granted DePuy
AcroMed's motion for summary judgment of invalidity of Cross' 237 Patent, ruling
that this patent is partially invalid. We are exploring strategies in response
to this ruling and currently plan to challenge it. However, there can be no
assurance that we will be successful in any such challenge.

     The trial had previously been scheduled for May 2002, but because the
parties are still involved in discovery, it has been postponed to a date that is
yet to be determined.

         Aside from the patent litigation, the nature of our business subjects
us to product liability and various other legal proceedings from time to time.
We are currently involved in legal proceedings incidental to the normal conduct
of our business. We do not believe that any liabilities relating to the legal
proceedings to which we are a party are likely to be, individually or in the
aggregate, material to our consolidated financial condition or results of
operations.

Item 4.  Submission of Matters to a Vote of Security Holders

     None.







                                       19

<PAGE>


                                     PART II

Item 5.  Market for Registrant's Common Stock and Related Stockholder Matters

     Our common stock commenced trading on The Nasdaq Stock Market under the
symbol "BONZ" on December 20, 1993. The following table sets forth, for the
periods indicated, the intra-day high and low sales prices per share of common
stock on The Nasdaq Stock Market:

                                                     High       Low
                                                   --------   -------
Year Ended December 31, 2000
First Quarter.....................................  $14.25     $ 7.63
Second Quarter....................................  $10.50     $ 7.50
Third Quarter.....................................  $12.38     $ 6.88
Fourth Quarter....................................  $ 8.25     $ 3.09

Year Ended December 31, 2001
First Quarter.....................................  $ 5.38     $ 3.38
Second Quarter....................................  $ 5.55     $ 3.52
Third Quarter.....................................  $ 7.85     $ 4.89
Fourth Quarter....................................  $ 9.57     $ 6.07

     On March 15, 2002, the closing sale price for our common stock as reported
on The Nasdaq Stock Market was $11.27. The number of record holders of our
common stock as of March 15, 2002 was 562.

     We currently do not pay any dividends on our common stock and our Board of
Directors has no present intention to pay cash dividends. The Board of Directors
intends to use any earnings for the development and expansion of our business.


                                       20

<PAGE>


Item 6.  Selected Financial Data

     The table below presents the selected consolidated financial data of
Interpore International, Inc. This information has been prepared using the
consolidated financial statements of Interpore International, Inc. as of and for
the years ended December 31, 1997, 1998, 1998, 2000 and 2001. Interpore
International, Inc. and Cross Medical Products, Inc. merged in May 1998. The
merger was accounted for as a pooling-of-interests. Accordingly, data as of and
for the year ended December 31, 1997 has been restated to include the financial
information of both companies.

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                    -------------------------------------------------------------------------
                                                         1997           1998          1999           2000            2001
                                                    -------------  ------------- -------------- -------------- --------------
                                                                         (in thousands, except per share data)
<S>                                                  <C>            <C>           <C>            <C>           <C>
Statement of Operations Data:
Net sales.........................................   $   28,429 (1) $   30,209    $   38,856     $   44,319     $   51,296
Cost of goods sold................................        9,110          8,552        11,645         13,460         14,355
                                                    -------------  ------------- -------------- -------------- --------------
     Gross profit.................................       19,319         21,657        27,211         30,859         36,941
Total operating expenses..........................       20,095 (1)     24,528 (2)    22,521         25,256         31,026
                                                    -------------  ------------- -------------- -------------- --------------
     Income (loss) from operations................         (776)        (2,871)        4,690          5,603          5,915
Total interest and other income, net..............          566            506           515            991          1,010
                                                    -------------  ------------- -------------- -------------- --------------
Income (loss) before taxes........................         (210)        (2,365)        5,205          6,594          6,925
Income tax provision (benefit)(3).................       (2,119)            59           407          2,461          2,667
                                                    -------------  ------------- -------------- -------------- --------------
     Income (loss) from continuing operations.....   $    1,909     $   (2,424)   $    4,798     $    4,133     $    4,258
                                                    =============  ============= ============== ============== ==============
Income (loss) from continuing operations
  per share:
     Basic........................................   $      .14     $     (.17)   $      .36     $      .29     $      .27
     Diluted......................................   $      .14     $     (.17)   $      .35     $      .27     $      .27

Shares used in computing income (loss) from
  continuing operations per share:
     Basic........................................       13,460         13,904        13,506         14,043         15,544
     Diluted......................................       14,111         13,904        13,876         15,140         15,985


<CAPTION>
                                                                                   As of December 31,
                                                    -------------------------------------------------------------------------
                                                         1997           1998          1999           2000            2001
                                                    -------------  ------------- -------------- -------------- --------------
<S>                                                  <C>            <C>           <C>            <C>           <C>
Balance Sheet Data:
Total cash, cash equivalents and short-term
  investments.....................................   $   16,590     $    7,908    $    9,774     $   14,610     $    6,538
Total assets......................................       41,483         34,147        40,793         45,233         64,562
Short-term obligations............................           95             15            15             10             --
Long-term obligations.............................        5,124          3,181         3,165             --             --
Total stockholders' equity........................       31,634         26,951        33,237         41,858         58,930
</TABLE>
----------
(1)  Our dental implant business was sold in May 1997. The transaction,
     including associated costs, resulted in a net charge to operating expenses
     of $617,000 in 1997. Net sales from the dental business were approximately
     $1.7 million in 1997.

(2)  Amount includes $5.0 million of non-recurring charges related to the May
     1998 merger with Cross, the subsequent restructuring associated with the
     closing of the Dublin, Ohio facility and the relocation of employees and
     assets from Dublin to Irvine, California.

(3)  In 1997, 1998 and 1999, we recognized deferred tax assets of $2.0 million,
     $211,000 and $1.6 million, respectively, which had previously been fully
     reserved in accordance with Statement of Financial Accounting Standards No.
     109.


                                       21

<PAGE>


Item 7. Management's Discussion and Analysis of Results of Operations and
        Financial Condition

Financial Overview

     Our revenues are generated from the sale of medical devices in three
principal categories--spine products, orthobiologic products and minimally
invasive surgery products. Our spine products consist of titanium or stainless
steel hooks, rods, plates, spacers and screws and related instruments required
for the surgeon to assemble a construct which restores the natural anatomy of
the spine, keeping it immobilized while a bone graft eventually fuses the
vertebrae. Our orthobiologic products consist of synthetic bone graft substitute
materials and products used to derive Autologous Growth Factors (AGF). AGF
fibrinogen-rich extract is used to provide faster, more complete bone growth and
enhance the performance of our bone graft products. Our minimally invasive
surgery products consist of instruments and devices used to deliver
biocompatible materials into bony structures in a minimally invasive procedure.
The products in this category were obtained in our recent acquisition of
American OsteoMedix Corporation ("AOM").

     All of our operations are located in the United States, however, we sell
our products to customers both within and outside the United States. Within the
United States, we distribute our products primarily through independent agents.
These independent agents provide a delivery and consultative service to our
surgeon and hospital customers and receive commissions based on sales in their
territories. The commissions are reflected in our income statement within
selling and marketing expense.

     For our spine products, we invoice hospitals directly following a surgical
procedure in which our products are used. Our spine products are made available
to hospitals from consignment inventories maintained by our larger independent
agents, or from loaner implant sets that we ship from our facility. For our
orthobiologic and minimally invasive surgery products, we generally ship
directly to hospitals from our facility, and we invoice hospitals upon shipment.

     Outside the United States, we sell our products directly to distributors
who maintain an inventory of our products. We record revenue at the time of
shipment to the distributor at prices reflecting a discount from our U.S. list
prices. The distributors service the surgeons and hospitals, deliver products
and invoice hospitals directly at prices determined by the distributors.

     Because our revenues from U.S. hospitals are primarily at list price, and
our revenues from international distributors are at a discount to U.S. list
prices, our overall gross margin is subject to fluctuation based on our domestic
versus international sales mix, with domestic gross margins being somewhat
higher than international gross margins. Additionally, the mix between spine
products sales and orthobiologic products sales also affects our gross margins,
with higher margins in orthobiologics.

Recent Event

     On July 10, 2001, we completed the acquisition of AOM, a developer,
manufacturer and marketer of minimally invasive surgery products. The initial
transaction value was $21 million, including approximately $8 million in cash,
approximately 2.4 million shares of our common stock valued at $12 million and
transaction costs of approximately $500,000. In addition to the initial
consideration, the agreement provides for contingent cash consideration of up to
$5 million based upon sales of AOM products through 2005. The transaction has
been accounted for using the purchase method of accounting. Results of
operations of AOM are included in our consolidated results of operations
beginning on July 10, 2001. Approximately $20 million of the purchase price was
allocated to goodwill.


                                       22

<PAGE>



Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. On an on-going basis, we evaluate our estimates including
those related to product returns, bad debts, inventories, intangible assets,
income taxes and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

     We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements:

     .    Revenue from sales of product where the customer immediately accepts
          title is recorded at the time of shipment. Revenue from sales of
          consigned inventory is recorded upon receipt of written
          acknowledgement from sales agents or customers that the product has
          been used in a surgical procedure. Provision is made currently for
          estimated product returns based on historical experience and other
          known factors.

     .    We maintain an allowance for doubtful accounts for estimated losses
          resulting from the inability of our customers to make required
          payments. If the financial condition of our customers were to
          deteriorate, resulting in an impairment of their ability to make
          payments, additional allowances may be required.

     .    We provide an inventory reserve for estimated obsolescence or
          unmarketable inventory equal to the difference between the cost of
          inventory and the estimated market value based upon assumptions about
          future demand and market conditions. If actual market conditions are
          less favorable than those projected by management, additional
          inventory write-downs may be required.

     .    We have significant intangible assets, including goodwill. The
          determination of related estimated useful lives and whether or not
          these assets are impaired involves significant judgments. Changes in
          strategy or market conditions could significantly impact these
          judgments and require adjustments to recorded asset balances.

     .    We currently have deferred tax assets, which are subject to periodic
          recoverability assessments. Realization of our deferred tax assets is
          principally dependent upon our achievement of projected future taxable
          income. We evaluate the realizability of the deferred tax assets
          annually.

Results of Operations

     The following table presents our results of operations as percentages:

<TABLE>
<CAPTION>



                                                                Percentage of Net Sales               Percentage Change
                                                                Year ended December 31,           --------------------------
                                                        ----------------------------------------   2000 vs.      2001 vs.
                                                            1999          2000          2001         1999          2000
                                                        ------------  ------------  ------------  ------------  ------------
<S>                                                     <C>            <C>           <C>           <C>          <C>
Net sales ..........................................       100.0%        100.0%        100.0%         14.1%         15.7%
Cost of goods sold .................................        30.0          30.4          28.0          15.6           6.7
                                                        ------------  ------------  ------------  ------------  ------------
     Gross profit ..................................        70.0          69.6          72.0          13.4          19.7
                                                        ------------  ------------  ------------  ------------  ------------
Operating expenses:
     Research and development ......................        10.7          12.0          13.2          26.5          27.2
     Selling and marketing .........................        36.0          35.7          36.3          13.3          17.8
     General and administrative ....................        11.2           8.7          11.0         (11.5)         46.0
     Non-recurring charges .........................           -            .6             -             -             -
                                                        ------------  ------------  ------------  ------------  ------------
          Total operating expenses .................        57.9          57.0          60.5          12.1          22.9
                                                        ------------  ------------  ------------  ------------  ------------
              Income from operations ...............        12.1%         12.6%         11.5%         19.5%          5.6%
                                                        ============  ============  ============  ============  ============
</TABLE>




                                       23

<PAGE>


Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     For the year ended December 31, 2001, sales of $51.3 million were $7.0
million, or 15.7%, higher than sales of $44.3 million for the previous year. The
following table presents sales by category (in thousands):

<TABLE>
<CAPTION>

                                                         Year ended December 31,                     Change
                                                       -----------------------------   -----------------------------
                                                           2000            2001           Amount         Percent
                                                       -------------   -------------   -------------  --------------
<S>                                                      <C>            <C>              <C>           <C>
Spine product sales .................................   $   23,702      $   29,490      $    5,788          24.4%
Orthobiologic product sales .........................       20,617          20,151            (466)         (2.3%)
Minimally invasive surgery  product sales ...........            -           1,655           1,655           -
                                                       -------------   -------------   -------------  --------------
     Total sales ....................................   $   44,319      $   51,296      $    6,977          15.7%
                                                       =============   =============   =============  ==============
</TABLE>


     Sales of spine products increased in the year ended December 31, 2001 by
$5.8 million, or 24.4%, to $29.5 million, compared to $23.7 million for the year
ended December 31, 2000. The increase is attributable to increased sales of the
SYNERGY Spinal System, and sales of our C-TEK Anterior Cervical Plate System
which was introduced in the first quarter of 2001.

     Sales of orthobiologic products decreased by $466,000, or 2.3%, to $20.2
million for the year ended December 31, 2001, compared to $20.6 million for the
year ended December 31, 2000. Sales of our synthetic bone graft products
decreased by 3.7% versus 2000. We believe that the decreased sales of synthetic
bone graft products have resulted from the intentional focus of our distribution
resources on the spinal surgery market. While this focus has benefited our spine
product sales, we believe that it has negatively impacted our sales of synthetic
bone graft products into the non-spinal orthopedic marketplace. We have
initiated discussions with third parties regarding the potential distribution of
our synthetic bone graft products into the non-spinal orthopedic marketplace,
but there can be no assurance that our efforts will be successful. Therefore, we
expect that our synthetic bone graft products will continue to experience
similar sales decreases for at least the next year. Sales of our AGF-related
products remained relatively unchanged compared to the year ended December 31,
2000.

     Sales of minimally invasive surgery products were $1.7 million for the year
ended December 31, 2001. These products were acquired as part of the AOM
acquisition and accordingly, no sales were recorded during 2000.

     Total domestic sales of spine products, orthobiologic products and
minimally invasive surgery products increased 12.4%, or $4.4 million, to $39.9
million for the year ended December 31, 2001, compared to $35.5 million for the
same period of 2000. International sales of $11.4 million for the year ended
December 31, 2001 were higher by 29.2% or $2.6 million compared to $8.8 million
for the same period of 2000.

     For the year ended December 31, 2001, gross margin as a percentage of sales
was 72.0%, compared to 69.6% for the year ended December 31, 2000. This
improvement primarily resulted from operating efficiencies resulting from
increased production volumes and higher average unit selling prices for our
domestic spine products.

     Total operating expenses for the year ended December 31, 2001 increased by
$5.8 million, or 22.9%, to $31.0 million, compared to $25.3 million during the
same period of 2000. Research and development expenses in 2001 increased by
27.2%, or $1.4 million, due primarily to efforts related to the development of
potential new products and expenses related to AOM. Selling and marketing
expenses in 2001 increased $2.8 million, or 17.8%, compared to 2000, primarily
due to commissions on increased sales and expenses related to AOM. General and
administrative expenses increased by $1.8 million, or 46.0%, in 2001, primarily
as the result of legal expenses associated with the DePuy AcroMed litigation and
expenses related to AOM.

     Total interest and other income was approximately $1.0 million in both 2001
and 2000. Lower interest income resulted from comparatively lower interest rates
and the decrease in cash and cash equivalents associated with the approximately
$8 million of cash used in connection with the acquisition of AOM in July 2001.
The decrease in interest income was offset by decreased interest expense
resulting from the elimination of long-term debt in 2000 and higher royalty
income.

     The effective tax rates for 2000 and 2001 were 37.3% and 38.5%,
respectively.


                                       24

<PAGE>

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     For the year ended December 31, 2000, sales of $44.3 million were $5.5
million or 14.1% higher than sales of $38.9 million for the previous year. The
following table presents sales by category (in thousands):

<TABLE>
<CAPTION>
                                 Year ended December 31,                  Change
                              -----------------------------   -----------------------------
                                 1999            2000           Amount         Percent
                              -------------   -------------   -------------  --------------
<S>                           <C>             <C>             <C>            <C>
Spine product sales..........    $ 20,807        $ 23,702         $ 2,895          13.9%
Orthobiologic product sales..      18,049          20,617           2,568          14.2
                              -------------   -------------   -------------  --------------
     Total sales.............  $   38,856      $   44,319      $    5,463          14.1%
                              =============   =============   =============  ==============
</TABLE>


     Sales of spine products increased in the year ended December 31, 2000 by
$2.9 million, or 13.9%, to $23.7 million, compared to $20.8 million for the year
ended December 31, 1999. We estimate that the growth rate approximated the
overall growth rate of the market for spinal implants.

     Sales of orthobiologic products increased by $2.5 million, or 14.2%, to
$20.6 million for the year ended December 31, 2000, compared to $18.1 million
for the year ended December 31, 1999. AGF related products, which were launched
on a nationwide basis during the second quarter of 1999, increased by $3.5
million or 128% to $6.3 million for the year ended December 31, 2000 compared to
$2.8 million in 1999. Sales of synthetic bone products decreased $1.0 million or
6.6% to $14.2 million versus $15.2 million in 2000.

     Total domestic sales of spine products and orthobiologic products increased
17.9%, or $5.4 million, to $35.5 million for the year ended December 31, 2000,
compared to $30.1 million for the same period of 1999. International sales were
essentially unchanged at $8.8 million for the years ended December 31, 1999 and
2000.

     For the year ended December 31, 2000, gross margin as a percentage of sales
was 69.6%, compared to 70.0% for the year ended December 31, 1999.

     Total operating expenses for the year ended December 31, 2000 increased by
$2.7 million, or 12.1%, to $25.3 million, compared to $22.5 million during the
same period of 1999. Research and development expenses in 2000 increased by
26.5%, or $1.1 million, due primarily to salaries for additional engineers hired
for development projects along with associated supply expenses and consulting
fees. Selling and marketing expenses in 2000 increased $1.9 million, or 13.3%,
compared to 1999, primarily due to increased commissions on higher domestic
sales in 2000. General and administrative expenses decreased by $499,000, or
11.5%, in 2000, primarily as the result of decreased corporate bonus expense and
lower product liability insurance premiums as a result of more favorable rates.
During the second quarter of 2000, a non-recurring charge of $268,000 was
recorded in connection with the withdrawal of a proposed secondary public stock
offering.

     Total interest and other income increased $476,000, or 92.4%, to $991,000
for the year ended December 31, 2000, compared to $515,000 during the same
period of 1999, as higher average cash, cash equivalents and short-term
investment balances in 2000 resulted in increased interest income and the
elimination of long-term debt in 2000 resulted in reduced interest expense.

     The effective tax rates for 1999 and 2000 were 7.8% and 37.3%,
respectively. During 1999, the income tax provision was partially offset by the
elimination of the valuation allowance against our deferred tax assets,
resulting in the comparatively lower effective rate.

Liquidity and Capital Resources

     In 2001, our operations generated positive cash flow of approximately $1.6
million. On July 10, 2001, we used approximately $8 million of our cash in
connection with the acquisition of AOM. We invest our excess cash in U.S.
Treasury securities and high-grade marketable securities. At December 31, 2001,
cash and cash equivalents were $6.5 million, down $8.1 million from $14.6
million at December 31, 2000. We also have a $5.0 million revolving line of
credit available to us that had no amount outstanding at December 31, 2001 and
which expires in June 2002.


                                       25

<PAGE>


     We have used and may continue to use our cash, our common stock, or a
combination of both to pay for purchased technologies, product lines, mergers
and acquisitions. In addition, new products scheduled for launch in 2002 will
require significant investment in initial inventory levels. We also intend to
continue to invest in the development of our business. We believe we currently
possess sufficient resources to meet the cash requirements of our operations for
at least the next year. However, some of these activities may require cash in
excess of that which we currently possess, and we can give no assurance that we
will be able to raise the additional capital on satisfactory terms, if at all.

     At December 31, 2001, we had no material commitments for capital
expenditures.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to market risk for changes in interest rates related
primarily to our cash and cash equivalent balances and marketable securities.
However, as all of our investments are in short-term instruments, we believe
that we have no material market risk exposure.

Item 8.  Financial Statements and Supplementary Data

     The Financial Statements and Supplementary Data of Interpore International,
Inc. are listed and included under Item 14 of this report.


Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

     None.


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

     There is hereby incorporated herein by reference the information appearing
under the caption Election of Directors in the Proxy Statement for the Interpore
International 2002 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2002.

Item 11.  Executive Compensation

     There is hereby incorporated herein by reference the information appearing
under the caption Executive Compensation in the Proxy Statement for the
Interpore International 2002 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2002.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     There is hereby incorporated herein by reference the information appearing
under the caption Security Ownership of Certain Beneficial Owners and Management
in the Proxy Statement for the Interpore International 2002 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 30, 2002.

Item 13.  Certain Relationships and Related Transactions

     There is hereby incorporated by reference the information appearing under
the caption Certain Relationships and Related Transactions in the Proxy
Statement for the Interpore International 2002 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission on or before April 30,
2002.


                                       26

<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a) (1) The following financial statements are referenced in Part II Item 8
and submitted herewith:
                                                                           Page
                                                                          Number
                                                                          ------
     Report of Independent Auditors .....................................   F-2

     Consolidated Balance Sheets at December 31, 2000 and 2001 ..........   F-3

     Consolidated Statements of Income for the Years Ended December 31,
       1999, 2000 and 2001 ..............................................   F-4

     Consolidated Statements of Stockholders' Equity for the Years Ended
       December 31, 1999, 2000 and 2001 .................................   F-5

     Consolidated Statements of Cash Flows for the Years Ended
       December 31, 1999, 2000 and 2001 .................................   F-6

     Notes to Consolidated Financial Statements .........................   F-7

     (2) The following financial statement schedule for the years ended December
         31, 1999, 2000 and 2001 is submitted herewith:

         Schedule II--Valuation and Qualifying Accounts

         All other schedules are omitted because they are not applicable
         or the required information is presented in the financial
         statements or notes thereto.

     (3) The list of exhibits contained in the Index to Exhibits is submitted
         herewith.

(b)  Reports on Form 8-K

     None.

                                       27

<PAGE>

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        INTERPORE INTERNATIONAL, INC.


                                        By:        /s/  DAVID C. MERCER
                                            ------------------------------------
                                                      David C. Mercer
                                            Chairman and Chief Executive Officer


Date:  March 27, 2002

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                                                               Title                               Date
                                                               -----                               ----
<S>                                           <C>                                       <C>


            /s/ DAVID C. MERCER               Chairman of the Board, Chief Executive          March 27, 2002
--------------------------------------------     Officer and Director (Principal        ----------------------------
              David C. Mercer                    Executive Officer)


           /s/ JOSEPH A. MUSSEY               President, Chief Operating Officer and          March 27, 2002
--------------------------------------------     Director                               ----------------------------
             Joseph A. Mussey


          /s/ RICHARD L. HARRISON             Sr. Vice President--Finance, Chief               March 27, 2002
--------------------------------------------     Financial Officer and Secretary        ----------------------------
            Richard L. Harrison                  (Principal Financial and Accounting
                                                 Officer)


           /s/ DAVID W. CHONETTE              Director                                        March 27, 2002
--------------------------------------------                                            ----------------------------
             David W. Chonette


         /s/ WILLIAM A. EISENECHER            Director                                        March 27, 2002
--------------------------------------------                                            ----------------------------
           William A. Eisenecher


         /s/ DANIEL A. FUNK, M.D.             Director                                        March 27, 2002
--------------------------------------------                                            ----------------------------
           Daniel A. Funk, M.D.


             /s/ LEWIS PARKER.                Director                                        March 27, 2002
--------------------------------------------                                            ----------------------------
               Lewis Parker


          /s/ ROBERT J. WILLIAMS              Director                                        March 27, 2002
--------------------------------------------                                            ----------------------------
            Robert J. Williams
</TABLE>


                                       28

<PAGE>

                          INTERPORE INTERNATIONAL, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                       ------------
<S>                                                                                                     <C>
Report of Independent Auditors ......................................................................      F-2

Consolidated Balance Sheets at December 31, 2000 and 2001 ...........................................      F-3

Consolidated Statements of Income for the Years Ended December 31, 1999, 2000 and 2001 ..............      F-4

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 2000
   and 2001 .........................................................................................      F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001 ..........      F-6

Notes to Consolidated Financial Statements ..........................................................      F-7

Schedule II--Valuation and Qualifying Accounts ......................................................     F-20

</TABLE>


                                       F-1

<PAGE>




                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
Interpore International, Inc.

     We have audited the accompanying consolidated balance sheets of Interpore
International, Inc. as of December 31, 2000 and 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2001. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Interpore
International, Inc. at December 31, 2000 and 2001, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

                              /s/ ERNST & YOUNG LLP

Orange County, California
February 5, 2002


                                       F-2

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

                           CONSOLIDATED BALANCE SHEETS

                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                   ---------------------------------
                                                                                         2000              2001
                                                                                   ---------------   ---------------
<S>                                                                                 <C>              <C>
Assets
Current assets:
    Cash and cash equivalents ...................................................   $     14,610      $      6,538
    Accounts receivable, less allowance for doubtful accounts
      of $461 and $688 in 2000 and 2001, respectively ...........................          9,536            13,051
    Inventories .................................................................         12,485            16,479
    Prepaid expenses ............................................................          1,193               763
    Deferred income taxes .......................................................          2,088             1,964
                                                                                   ---------------   ---------------
Total current assets ............................................................         39,912            38,795
Property, plant and equipment, net ..............................................          1,509             2,354
Deferred income taxes ...........................................................          1,598             1,022
Intangible assets, net ..........................................................          2,143            22,130
Other assets ....................................................................             71               261
                                                                                   ---------------   ---------------
Total assets ....................................................................   $     45,233      $     64,562
                                                                                    ==============    ==============
Liabilities and stockholders' equity
Current liabilities:
    Accounts payable ............................................................            886             1,981
    Accrued compensation and related expenses ...................................          1,347             1,969
    Accrued royalties ...........................................................            372               474
    Income taxes payable ........................................................            188               664
    Other accrued liabilities ...................................................            582               544
                                                                                   ---------------   ---------------
Total current liabilities .......................................................          3,375             5,632
                                                                                   ---------------   ---------------
Commitments and contingencies
Stockholders' equity:
     Series E convertible preferred stock, voting, par value $.01 per share:
       Authorized shares - 594,000; issued and outstanding shares - none ........            --                --
     Preferred stock, par value $.01 per share: Authorized shares - 4,406,000;
       outstanding shares - none ................................................            --                --
     Common stock, par value $.01 per share: Authorized shares - 50,000,000;
       issued and outstanding shares - 15,026,302 at December 31, 2000 and
       17,543,605 at December 31, 2001 ..........................................            150               175
    Additional paid-in-capital ..................................................         49,928            62,717
    Accumulated deficit .........................................................         (5,111)             (853)
                                                                                   ---------------   ---------------
                                                                                          44,967            62,039
     Less treasury stock, at cost - 605,000 shares at December 31, 2000 and
       December 31, 2001 ........................................................         (3,109)           (3,109)
                                                                                   ---------------   ---------------
Total stockholders' equity ......................................................         41,858            58,930
                                                                                   ---------------   ---------------
Total liabilities and stockholders' equity.......................................   $     45,233      $     64,562
                                                                                   ===============   ===============
</TABLE>


     See accompanying notes.


                                       F-3

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                                 ---------------------------------------------------
                                                                       1999             2000              2001
                                                                 ----------------  ---------------   ---------------
<S>                                                              <C>                <C>              <C>
Net sales ...................................................     $     38,856      $     44,319      $     51,296
Cost of goods sold ..........................................           11,645            13,460            14,355
                                                                 ----------------  ---------------   ---------------
Gross profit ................................................           27,211            30,859            36,941
                                                                 ----------------  ---------------   ---------------
Operating expenses:
     Research and development ...............................            4,192             5,302             6,745
     Selling and marketing ..................................           13,978            15,834            18,657
     General and administrative .............................            4,351             3,852             5,624
     Non-recurring charges ..................................                -               268                 -
                                                                 ----------------  ---------------   ---------------
Total operating expenses ....................................           22,521            25,256            31,026
                                                                 ----------------  ---------------   ---------------
Income from operations ......................................            4,690             5,603             5,915
                                                                 ----------------  ---------------   ---------------
Interest income .............................................              457               702               479
Interest expense ............................................             (342)             (155)              (15)
Other income ................................................              400               444               546
                                                                 ----------------  ---------------   ---------------
Total interest and other income, net ........................              515               991             1,010
                                                                 ----------------  ---------------   ---------------
Income before taxes .........................................            5,205             6,594             6,925
Income tax provision ........................................              407             2,461             2,667
                                                                 ----------------  ---------------   ---------------
Net income ..................................................     $      4,798      $      4,133      $      4,258
                                                                 ================  ===============   ===============
Net income per share:
     Basic ..................................................     $        .36      $        .29      $        .27
     Diluted ................................................     $        .35      $        .27      $        .27
Shares used in computing earnings per share:
     Basic ..................................................           13,506            14,043            15,544
     Diluted ................................................           13,876            15,140            15,985
</TABLE>


See accompanying notes.


                                       F-4

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                 (in thousands)

<TABLE>
<CAPTION>
                                            Series E
                                          Convertible                                Accumulated
                                        Preferred Stock   Common Stock  Additional      Other                             Total
                                        ---------------  --------------  Paid-In    Comprehensive Accumulated Treasury Stockholders'
                                         Shares  Amount  Shares  Amount  Capital         Loss       Deficit     Stock    Equity
                                        -------  ------  ------  ------ ---------- -------------- ----------- -------- -------------
<S>                                     <C>     <C>     <C>      <C>   <C>          <C>           <C>        <C>           <C>
Balance at December 31, 1998 ..........    33    $    -  14,060  $  141  $  43,961 $            -  $ (14,042) $ (3,109)   $  26,951
     Unrealized loss on short-term
       investments (including tax
       benefit of $2) .................     -         -       -       -          -             (4)         -         -           (4)
     Net income .......................     -         -       -       -          -              -      4,798         -         4,798
                                        ------- -------- ------ ------- ---------- -------------- ----------- -------- -------------
     Comprehensive income (loss) ......     -         -       -       -          -             (4)     4,798         -         4,794
     Exercise of stock options ........     -         -      81       1        178              -          -         -           179
     Conversion of preferred stock into
       common stock ...................    (7)        -       7       -          -              -          -         -             -
     Issuances under employee stock
       purchase plan ..................     -         -      24       -        103              -          -         -           103
     Shares issued in purchase of AGF
       technology .....................     -         -     100       1      1,209              -          -         -         1,210
                                        ------- -------- ------ ------- ---------- -------------- ----------- -------- -------------
Balance at December 31, 1999 ..........    26         -  14,272     143     45,451             (4)    (9,244)   (3,109)       33,237
     Unrealized gain on short-term
       investments (including tax
       benefit of $2) .................     -         -       -       -          -              4          -         -             4
     Net income .......................     -         -       -       -          -              -      4,133         -         4,133
                                        ------- -------- ------- ------ ---------- -------------- ------------ ------- -------------
     Comprehensive income .............     -         -       -       -          -              4      4,133         -         4,137
     Exercise of stock options ........     -         -     242       2      1,543              -          -         -         1,545
     Conversion of preferred stock into
       common stock ...................   (26)        -      26       -          -              -          -         -             -
     Issuances under employee stock
       purchase plan ..................     -         -      16       -         75              -          -         -            75
     Debentures converted into
       common stock ...................     -         -     470       5      2,859              -          -         -         2,864
                                        ------- -------- ------ ------- ---------- -------------- ----------- -------- -------------
Balance at December 31, 2000 ..........     -    $    -  15,026  $  150  $  49,928 $            - $   (5,111)  $(3,109)   $   41,858
     Net income and comprehensive
       income .........................     -         -       -       -          -              -      4,258         -         4,258
     Exercise of stock options ........     -         -      87       1        266              -          -         -           267
     Compensation from stock option
       grants .........................     -         -       -       -        161              -          -         -           161
     Issuances under employee stock
       purchase plan ..................     -         -      31       -         98              -          -         -            98
     Shares issued in purchase of
       American OsteoMedix
       Corporation ....................     -         -   2,400      24     12,264              -          -         -        12,288
                                        ------- -------- ------ ------- ---------- -------------- ----------- -------- -------------
Balance at December 31, 2001 ..........     -    $    -  17,544  $  175  $  62,717   $          - $     (853) $ (3,109)   $   58,930
                                        ======= ======== ====== ======= ========== ============== =========== ======== =============
</TABLE>


See accompanying notes.



                                       F-5

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                          ---------------------------------------------
                                                                              1999            2000            2001
                                                                          --------------  -------------   -------------
<S>                                                                       <C>              <C>             <C>
Cash Flows from Operating Activities:
     Net income .......................................................    $    4,798      $    4,133      $    4,258
     Adjustments to reconcile net income to net cash
         provided by operating activities:
          Depreciation ................................................           739             736             852
          Amortization ................................................           113             249             225
          Compensation from stock option grants                                     -               -             161
          Changes in operating assets and liabilities:
             Accounts receivable ......................................        (2,469)           (649)         (3,085)
             Inventories ..............................................          (955)            585          (3,481)
             Prepaid expenses .........................................            43             (96)            352
             Other assets .............................................           405              55             (88)
             Deferred income taxes ....................................          (151)            397             700
             Accounts payable and accrued liabilities .................           376          (1,011)          1,754
                                                                          --------------  -------------   -------------
          Net cash provided by operating activities ...................         2,899           4,399           1,648
                                                                          --------------  -------------   -------------

Cash Flows from Investing Activities:
     Net cash paid for American OsteoMedix Corporation ................             -               -          (8,286)
     Capital expenditures .............................................          (621)           (896)         (1,594)
     Expenditures for patent rights ...................................          (146)            (80)           (195)
     Purchase of AGF technology .......................................          (526)            (38)              -
     Purchases of short-term investments ..............................        (3,465)              -               -
     Sales of short-term investments ..................................             -           3,463               -
                                                                          --------------  -------------   -------------
          Net cash provided by (used in) investing activities .........        (4,758)          2,449         (10,075)
                                                                          --------------  -------------   -------------

Cash Flows from Financing Activities:
     Repayment of long-term debt and capitalized lease obligations ....           (16)           (173)            (10)
     Proceeds from exercise of stock options ..........................           179           1,545             267
     Proceeds from employee stock purchase plan .......................           103              75              98
                                                                          --------------  -------------   -------------
          Net cash provided by financing activities ...................           266           1,447             355
                                                                          --------------  -------------   -------------
Net increase (decrease) in cash and cash equivalents ..................        (1,593)          8,295          (8,072)
Cash and cash equivalents at beginning of year ........................         7,908           6,315          14,610
                                                                          --------------  -------------   -------------
Cash and cash equivalents at end of year ..............................    $    6,315      $   14,610      $    6,538
                                                                          ==============  =============   =============
</TABLE>


See accompanying notes.



                                       F-6

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2001

1.  Summary of Significant Accounting Policies

Organization and Description of Business

     Interpore International, Inc. ("Interpore"), doing business as Interpore
Cross International ("Interpore Cross") operates in one business segment: the
design, manufacture and marketing of medical devices for the orthopedic
marketplace. Interpore's products are distributed in the United States and
internationally.

Basis of Presentation

     The accompanying consolidated financial statements include the accounts of
Interpore Cross and its subsidiaries after elimination of all significant
intercompany transactions. In May 1998, Interpore merged with Cross Medical
Products, Inc. ("Cross"), a publicly traded Ohio-based worldwide supplier of
spinal implant systems used to treat degenerative conditions and deformities of
the spine. This merger has been accounted for as a pooling-of-interests. Certain
amounts in the consolidated financial statements have been reclassified to
conform to the 2001 presentation.

Revenue Recognition

     Revenue from sales of product where the customer immediately accepts title
is recorded at the time of shipment. Revenue from sales of consigned inventory
is recorded upon receipt of written acknowledgement from sales agents or
customers that the product has been used in a surgical procedure. Provision is
made currently for estimated product returns based on historical experience and
other known factors.

Per Share Information

     Basic earnings per share (EPS) is calculated by dividing net earnings by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the assumed conversion of all dilutive securities, consisting of
employee stock options, convertible securities and warrants. The following table
presents the computation of net income per share (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                       ---------------------------------------------
                                                                           1999            2000           2001
                                                                       -------------   -------------  --------------
<S>                                                                     <C>             <C>            <C>
Net income ........................................................     $    4,798      $    4,133     $    4,258
                                                                       =============   =============  ==============
Shares used in computing net income per share--basic
     Weighted average common shares outstanding ...................         13,506          14,043         15,544
Effect of dilutive securities:
     Weighted average convertible preferred stock (1) .............             31               6              -
     Common share equivalents outstanding .........................            339           1,091            441
                                                                       -------------   -------------  --------------
Shares used in computing net income per share--diluted ............         13,876          15,140         15,985
                                                                       =============   =============  ==============
Basic earnings per share ..........................................     $      .36      $      .29     $      .27
Diluted earnings per share ........................................     $      .35      $      .27     $      .27
</TABLE>

----------
(1)  On March 1, 2000, all of the outstanding Series E Preferred Stock converted
     into common stock.


                                       F-7

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Concentrations of Business and Credit Risk

     Interpore Cross operates in worldwide markets which are subject to rapid
technological advancement and significant government regulation. The
introduction of technologically advanced products by competitors and increased
regulatory or trade barriers could have a material impact on the future
operations of Interpore Cross.

     In the normal course of business, Interpore Cross provides credit to its
customers. At December 31, 2001, 62% of Interpore Cross' accounts receivable are
from domestic customers and 38% are from foreign customers. Interpore Cross
performs ongoing credit evaluations of its customers and maintains allowances
for potential credit losses which, when realized, have been within the range of
management's expectations. Sales to domestic customers were 78%, 80% and 78% of
total sales in 1999, 2000 and 2001, respectively, and sales to foreign customers
were 22%, 20% and 22% of total sales in 1999, 2000 and 2001, respectively. All
sales to foreign customers for the periods presented were denominated in United
States dollars.

     In the U.S., there are no significant customer concentrations, as Interpore
Cross invoices hospitals directly for product used or shipped and no one
hospital is significant. However, in the international markets, Interpore Cross
has two significant distributors that on a combined basis accounted for
approximately 34.6% of its 2001 international sales and 7.7% of its 2001
worldwide sales.

Stock Option Plans

     Interpore Cross accounts for stock compensation to employees using the
intrinsic value method provided for by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations, and
provides supplementary disclosures in the notes to the consolidated financial
statements of the differences between using this method and the fair value
method as required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation.

Advertising

     Interpore Cross expenses as incurred the costs of advertising which totaled
$219,000, $198,000 and $479,000 for the years ended December 31, 1999, 2000 and
2001, respectively.

Research and Development

     Expenditures for research and development are expensed as incurred.

Cash, Cash Equivalents and Short-term Investments

     Interpore Cross invests excess cash in United States Treasury securities
and high grade marketable securities. Highly liquid investments with a maturity
of three months or less at the date of purchase are classified as cash
equivalents. Short-term investments consist of highly liquid investments with a
maturity of more than three months when purchased. Pursuant to Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, Interpore Cross' short-term investments are
classified as available-for-sale securities and are reported at fair market
value.


                                       F-8

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories

     Inventories are stated at the lower of first-in, first-out average cost or
market. Inventories are comprised of the following (in thousands):

                                                           December 31,
                                                   -----------------------------
                                                       2000           2001
                                                   -------------  --------------
     Raw material ................................     $ 1,202        $ 1,503
     Work-in-process .............................         575            742
     Finished goods ..............................      10,708         14,234
                                                   -------------  --------------
                                                    $   12,485     $   16,479
                                                   =============  ==============

Shipping Costs

     Shipping costs are included in cost of sales.

Property, Plant and Equipment

     Property, plant and equipment are stated at cost and are comprised of the
following (in thousands):

                                                             December 31,
                                                     ---------------------------
                                                         2000           2001
                                                     ------------   ------------
     Machinery and equipment ......................    $    4,045    $    5,658
     Furniture and fixtures .......................           882           960
     Leasehold improvements .......................           658           664
                                                     -------------  ------------
     Property, plant and equipment, at cost .......         5,585         7,282
     Less accumulated depreciation and
       amortization................................        (4,076)       (4,928)
                                                     -------------  ------------
     Property, plant and equipment, net ...........    $    1,509    $    2,354
                                                     =============  ============


     Depreciation is provided using the straight-line method over the following
estimated useful lives:

     Machinery and equipment ......................  3 to 5 years
     Furniture and fixtures .......................  5 years
     Leasehold improvements .......................  Lesser of estimated useful
                                                     life or term of lease

Intangible Assets

     Intangible assets include goodwill, patents and license rights. Goodwill
and other intangible assets with indefinite lives are not amortized but instead
are subject to impairment tests at least annually. As of December 31, 2001,
there was no impairment of the goodwill recorded in the acquisition of American
OsteoMedix Corporation ("AOM"). The patents and license rights are amortized on
a straight-line basis over their estimated useful lives. Amortization begins at
the time the patents are issued. Management periodically evaluates the
recoverability of intangible assets based on undiscounted future cash flows.
Amortization expense for the years ended December 31, 1999, 2000 and 2001 was
$113,000, $249,000 and $225,000, respectively. Accumulated amortization of
intangible assets was $446,000 and $671,000 at December 31, 2000 and 2001,
respectively.

Consolidated Statements of Cash Flows

     Interpore Cross paid income taxes of $163,000, $1,968,000 and $1,408,000
and interest of $294,000, $152,000 and $15,000 in 1999, 2000 and 2001,
respectively.


                                       F-9

<PAGE>



                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-Lived Assets

     In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets, Interpore Cross reviews
long-lived assets and certain intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Interpore Cross believes no impairment of the carrying value of its
long-lived assets existed at December 31, 2001.

Use of Estimates

       The preparation of these financial statements requires the use of
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. On an on-going basis, estimates, including those related
to product returns, bad debts, inventories, intangible assets, income taxes and
litigation, are evaluated. Estimates are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations and No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 addresses financial
accounting and reporting for business combinations and requires all business
combinations to be accounted for using the purchase method. SFAS No. 141 is
effective for any business combinations initiated after June 30, 2001. SFAS No.
142, effective for Interpore Cross on January 1, 2002, addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. Goodwill and other intangible assets with indefinite
lives will no longer be amortized but instead will be subject to impairment
tests at least annually. In July 2001, upon the acquisition of AOM, Interpore
Cross adopted SFAS No. 141 and SFAS No. 142.

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No.
144 Supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of and other related accounting
guidance. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The provisions of SFAS No. 144
generally are to be applied prospectively. Interpore Cross will adopt the
statement on January 1, 2002 and does not expect the statement to have a
material impact on the consolidated financial statements.

2.  Acquisition of AGF Technology

     In December 1999, Interpore Cross purchased all of the intellectual
property of Quantic Biomedical, Inc. which included the patents and technology
for making AGF. The purchase price of $1.9 million included a cash payment of
$500,000, 100,000 unregistered shares of Interpore Cross common stock with a
fair market value of $551,000 and 200,000 stock purchase warrants which vest
over a two-year period at exercise prices ranging from $7.13 to $8.63 with a
fair market value of $659,000. Additionally, previously paid unamortized license
fees of $167,000 were reallocated to the purchase price. The total purchase
price has been recorded as an intangible asset and is being amortized over a
ten-year period.



                                       F-10

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3.   Acquisition of American OsteoMedix Corporation

     On July 10, 2001, Interpore Cross completed the acquisition of AOM, a
developer, manufacturer and marketer of unique minimally invasive surgery
products which facilitate the delivery of biocompatible materials into bone
through small incisions, a procedure referred to as osteoplasty. The initial
transaction value was $21 million, including approximately $8 million in cash,
approximately 2.4 million shares of Interpore Cross common stock valued at $12
million and transaction costs of approximately $500,000. In addition to the
initial consideration, the agreement provides for contingent cash consideration
of up to $5 million based upon sales of AOM products through 2005. The
transaction has been accounted for using the purchase method of accounting.
Results of operations of AOM are included in Interpore Cross' consolidated
results of operations beginning on July 10, 2001. Approximately $20 million of
the purchase price was allocated to goodwill and future contingent cash
consideration will also be allocated to goodwill. The remaining purchase price
was assigned to accounts receivable of $430,000, inventory of $513,000, prepaid
expenses of $24,000, property, plant and equipment of $103,000 and current
liabilities of $513,000.

4.  Fair Value of Financial Instruments

     The estimated fair value of financial instruments is as follows (in
thousands):


                                 December 31, 2000          December 31, 2001
                             ------------------------   ------------------------
                               Carrying       Fair        Carrying      Fair
                                Amount        Value        Amount       Value
                             -----------  -----------   -----------  -----------
Assets:
  Cash and cash equivalents.. $ 14,610   $ 14,610       $ 6,538     $ 6,538

     Due to the short-term nature of cash and cash equivalents, the carrying
amount approximates the fair value.

5.  Long-Term Obligations

     The 8.5% Convertible Subordinated Debentures (the "Debentures") due June 1,
2003 were convertible at any time before maturity, unless previously redeemed,
into shares of Interpore Cross common stock at a conversion price of $6.37 per
share. Pursuant to the terms of the underlying indenture, upon the merger of
Interpore and Cross, Debenture holders were allowed to request redemption until
June 26, 1998 at 101% of the principal amount thereof, plus accrued interest.
Requests for redemption totaling $1.8 million were made. During 1998, $97,000 of
Debentures were converted into 15,221 shares of Interpore Cross common stock.
There were no conversions recorded in 1999. On June 14, 2000, Interpore Cross
notified the holders that the Debentures would be redeemed, if not earlier
converted, effective August 1, 2000. In 2000, Debentures totaling $3.0 million
were converted into 470,000 shares of common stock, and $155,000 of the
Debentures were redeemed.

     Amortization of offering costs, related to the issuance of the Debentures,
of $48,000 and $25,000 for the years ended December 31, 1999 and 2000,
respectively, is included in interest expense.

     Interpore Cross has available a $5 million line of credit facility with its
primary bank. The line is secured by substantially all of the assets of
Interpore Cross, bears interest at the bank's prime rate (4.75% at December 31,
2001), and matures in June 2002. The facility contains certain financial
covenants with which Interpore Cross was in compliance at December 31, 2001. No
amount was outstanding under the facility at December 31, 2001.

                                    F-11

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6.  Stockholders' Equity

Series E Convertible Preferred Stock

     On March 1, 2000, Interpore Cross common stock closed above $10.00 for the
twentieth day out of 30 consecutive trading days and, accordingly, as provided
in the Series E Preferred Stock Agreement, all of the outstanding Series E
Preferred Stock converted into common stock.

Stock Options

     Interpore Cross has seven stock option plans that provide for the granting
of incentive stock options or non-qualified stock options to officers, key
employees, directors and consultants. The 1995 Stock Option Plan (the "1995
Plan"), the Stock Option Plan for Non-Employee Directors (the "Directors Plan"),
the 1999 Consultants Stock Option Plan (the "Consultants Plan") and the 2000
Equity Participation Plan (the "2000 Plan") are the only plans with stock option
awards available for grant. The other three plans have either expired or have
been terminated with respect to future option grants, but have options
outstanding and exercisable at December 31, 2001. Options outstanding under
Interpore Cross' seven stock option plans generally vest over a four- or
five-year period, and generally expire either six years or ten years from the
date of grant.

     At December 31, 2001, there were 10,675 shares available for grant under
the 1995 Plan, all of which are available for grant in 2002. The Directors Plan
provides for a maximum of 200,000 shares to be issued pursuant to options
granted under the plan and we are seeking approval at the 2002 Annual Meeting of
Stockholders of an increase to 300,000 shares. At December 31, 2001, there were
approximately 187,500 shares available for grant under the Directors Plan,
including the pending 100,000 share increase. The Consultants Plan provides for
a maximum of 300,000 shares to be issued pursuant to options granted under the
plan. 250,000 shares were available for grant at December 31, 2001. The 2000
Plan provides for a maximum of 1.0 million shares to be issued pursuant to
options granted under the plan. 778,500 shares were available for grant at
December 31, 2001.



                                       F-12

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The following is a summary of stock option activity and weighted average
exercise price per share for periods indicated:

<TABLE>
<CAPTION>
                                                                                      Weighted
                                                                                       Average
                                                                                      Exercise
                                                                        Shares          Price
                                                                    -------------  --------------
<S>                                                                  <C>             <C>
Outstanding at December 31, 1998 .................................   2,220,747     $   5.52
     Granted .....................................................     428,000         4.76
     Exercised ...................................................     (80,937)        2.21
     Forfeited and expired .......................................    (164,880)        6.72
                                                                    -------------
Outstanding at December 31, 1999 .................................   2,402,930         5.41
     Granted .....................................................     531,000         7.61
     Exercised ...................................................    (256,582)        5.39
     Forfeited and expired .......................................    (258,155)        6.27
                                                                    -------------
Outstanding at December 31, 2000 .................................   2,419,193         5.80
     Granted .....................................................     493,650         4.46
     Exercised ...................................................    (109,960)        3.80
     Forfeited and expired .......................................    (153,040)        6.39
                                                                    -------------
Outstanding at December 31, 2001 .................................   2,649,843         5.60
                                                                    =============
Options exercisable at:
     December 31, 1999 ...........................................   1,706,805     $   5.54
     December 31, 2000 ...........................................   1,622,693         5.50
     December 31, 2001 ...........................................   1,665,393         5.67

Estimated fair value per share of options granted during the year
     1999 ........................................................                 $   3.13
     2000 ........................................................                     5.02
     2001 ........................................................                     5.63
</TABLE>


     The weighted average remaining contractual life of stock options
outstanding at December 31, 1999, 2000 and 2001 were approximately 5.4, 5.1 and
5.2 years, respectively.

     Summary information about stock options outstanding at December 31, 2001
follows:

<TABLE>
<CAPTION>
                                                                                          Exercisable at
                                 Outstanding at December 31, 2001                        December 31, 2001
                      -------------------------------------------------------   ------------------------------------
                                             Weighted
                                             Average
                                            Remaining
                                           Contractual          Weighted                               Weighted
     Range of                                  Life             Average                                Average
  Exercise Price          Shares            (in Years)       Exercise Price         Shares          Exercise Price
-------------------   ----------------   -----------------  -----------------   ----------------   -----------------
<S>                   <C>                <C>                <C>                  <C>               <C>
$1.00 - $ 3.00              213,060                4         $      1.46              213,060       $      1.46
$3.01 - $ 5.00              919,550              7.3                4.36              339,100              4.64
$5.01 - $ 7.00              720,933              3.7                5.77              607,933              5.82
$7.01 - $ 9.00              775,300              5.5                7.94              501,050              7.95
$9.01 - $12.13               21,000              8.6                9.72                4,250              9.83
                      ----------------                                          ----------------
$1.00 - $12.13            2,649,843              5.2                5.60            1,665,393              5.67
                      ================                                          ================
</TABLE>


                                       F-13

<PAGE>



                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Employee Stock Purchase Plan

     Interpore Cross has a qualified employee stock purchase plan which allows
employees to purchase shares of Interpore Cross common stock every six months
through payroll deductions. The purchase price for the shares is 85% of the
lesser of the fair market value of such shares on the first or last day of each
six-month period. The plan provides for a maximum of 300,000 shares to be issued
pursuant to the plan. As of December 31, 2001, 137,868 shares of common stock
had been issued pursuant to the plan.

Stockholder Rights Plan

     Under Interpore Cross' Stockholder Rights Plan, every share of Interpore
Cross common stock currently issued or to be issued is accompanied by one right,
and every common share issued upon conversion of Interpore Cross preferred stock
also will be accompanied by one right. The plan provides for the rights to
become exercisable upon the earlier to occur of (i) ten days following the
announcement that a person or group of persons has acquired or obtained the
right to acquire 15% or more of Interpore Cross common stock, or (ii) ten days
following the announcement or commencement of a tender offer which would result
in ownership of 15% or more of the common stock.

     If any person or group of persons acquires 15% or more of Interpore Cross
common stock, each right, once exercisable and excluding any rights acquired by
the 15% holder, will entitle its holder to purchase that number of additional
shares of Interpore Cross common stock having a market value of twice the
rights' exercise price. If Interpore Cross is involved in a merger or other
business combination involving the exchange of Interpore Cross common stock for
stock of an acquiring company at any time after the rights become exercisable,
each right will entitle its holder to purchase that number of the acquiring
company's common stock having a market value of twice the rights' exercise
price.

     The rights' current exercise price is $33.00. The exercise price and the
number of shares issuable upon exercise are subject to adjustment from time to
time to prevent dilution. The rights will expire on November 17, 2007, subject
to Interpore Cross' right to extend such date, unless earlier redeemed or
exchanged by Interpore Cross or terminated. Interpore Cross is entitled to
redeem the rights at one cent per right at any time before they become
exercisable.

Treasury Stock

     In November 1998, Interpore Cross' Board of Directors approved a plan to
repurchase up to 4.0 million shares of Interpore Cross common stock. Through
December 31, 1998, Interpore Cross repurchased and placed into treasury 605,000
shares at a cost of approximately $3.1 million under this program. The
repurchase approval terminated following the 605,000 share repurchase.

Accounting for Stock-Based Compensation

     Interpore Cross applies Accounting Principles Board Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation, requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of Interpore Cross' employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.



                                       F-14

<PAGE>


                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if Interpore Cross had
accounted for employee stock options granted on or after January 1, 1995 under
the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: a risk-free interest rate of 6% in
1999 and 2000 and 5% in 2001, a volatility factor of the expected market price
of Interpore Cross common stock of .67 in 1999 and 2000 and .69 in 2001, a
weighted-average expected life of the options of six years, and no dividend
yield.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Interpore
Cross' pro forma information, which reflects the charges related to options
issued in 1999, 2000 and 2001 and may not be indicative of such charges in
future periods, is as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                           ---------------------------------------------
                                               1999            2000           2001
                                           -------------   -------------  --------------
<S>                                         <C>            <C>              <C>
Pro forma net income (in thousands) ......  $    3,958      $    3,054     $    3,138
Pro forma basic net income per share .....  $       29           $  22          $  20
Pro forma diluted net income per share ...  $       29           $  20          $  20
</TABLE>


7.  Income Taxes

     Interpore Cross uses the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefit in
the future.

     A reconciliation of the income tax provision (benefit) using the federal
statutory rate to the book provision for income taxes follows (in thousands):

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                     ---------------------------------------------
                                                         1999            2000           2001
                                                     -------------   -------------  --------------
<S>                                                   <C>             <C>             <C>
Statutory federal provision for income taxes .......  $    1,770      $    2,242     $    2,354
Increase (decrease) in taxes resulting from:
   State tax, net of federal benefit ...............         131             239            251
   Research and development tax credits ............          35              -              -
   Reduction in valuation allowance ................      (1,609)              -              -
   Permanent differences and other .................          80             (20)            62
                                                     -------------   -------------  --------------
Income tax provision ...............................  $      407      $    2,461     $    2,667
                                                     =============   =============  ==============
</TABLE>


                                       F-15

<PAGE>



                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Significant components of the income tax provision (benefit) are as follows
(in thousands):

                                           Year Ended December 31,
                               ---------------------------------------------
                                   1999             2000           2001
                               -------------   -------------  --------------
Current expense:
   Federal ..................     $    277        $  1,783       $  1,602
   State ....................          281             281            365
                               -------------   -------------  --------------
Total current                          558           2,064          1,967
                               -------------   -------------  --------------
Deferred expense (benefit):
   Federal ..................          (68)            350            684
   State ....................          (83)             47             16
                               -------------   -------------  --------------
Total deferred ..............         (151)            397            700
                               -------------   -------------  --------------
Total income tax provision ..     $    407        $   2,461      $  2,667
                               =============   =============  ==============

     Current tax expense does not reflect benefit of $236,000 and $69,000 for
the years ended December 31, 2000, and 2001, respectively, related to the
exercise of employee stock options recorded in additional paid-in capital.

     At December 31, 2001, Interpore Cross has unused net operating loss
carryforwards of approximately $2.2 million for federal income tax purposes
which expire beginning in 2007. Interpore Cross also has research and
development tax credit and alternative minimum tax credit carryforwards of
approximately $325,000 for federal tax purposes. The federal research and
development tax credit carryforward will begin to expire in 2002. Prior to 1995,
a valuation allowance was recorded to entirely offset the tax benefits of the
federal carryforwards. In 1998 and 1999, the valuation allowance was reduced,
and ultimately eliminated, to recognize the future tax benefits which management
believes are more likely than not to be realized. At December 31, 2001, the
valuation allowance of $513,000 entirely offsets the tax benefit of deferred tax
assets received in the acquisition of AOM.

     The Tax Reform Act of 1986 includes provisions which significantly limit
the potential use of net operating losses and tax credit carryforwards in
situations where there is a change in ownership, as defined, of more than 50%
during a cumulative three-year period. Accordingly, if a change in ownership
occurs, the ultimate benefit realized from these carryforwards may be
significantly reduced in total, and the amount that may be utilized in any given
year may be significantly limited. California has enacted similar legislation.
As a result of the merger with Cross, a greater than 50% change in ownership
occurred during the year ended December 31, 1998. Accordingly, the use of these
carryforwards is limited to approximately $2.3 million per year.

     In addition to the net operating losses discussed above, Interpore Cross
has federal net operating loss carryforwards at December 31, 2001 of
approximately $4.3 million resulting from the acquisition of Interpore
Orthopaedics, Inc. ("Orthopaedics"). As a result of the acquisition,
Orthopaedics experienced a more than 50% ownership change. Accordingly, under
the provisions of the 1986 Tax Reform Act, the use of Orthopaedics' net
operating loss carryforwards is limited to approximately $300,000 per year.
These carryforwards expire beginning in the year 2002. As a result of the annual
limitation, it is estimated that a maximum of $1.0 million in net operating loss
carryforwards will be available for use prior to expiration. The ultimate
realization of the benefits of these loss carryforwards is dependent on future
profitable operations of Orthopaedics.

                                       F-16

<PAGE>

                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 2001 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                   ------------------
                                                                                     2000      2001
                                                                                   --------  --------
<S>                                                                                <C>       <C>
Deferred tax assets:
   Interpore net operating loss carryforwards ..................................   $ 1,451   $ 1,274
   Orthopaedics net operating loss carryforwards ...............................       430       323
   Research and development and alternative minimum tax credit carryforwards ...       379       346
   Reserves and accruals not currently deductible for tax purposes .............       357       375
   Inventory capitalization ....................................................       901     1,589
   Depreciation not currently deductible for tax purposes ......................       168      --
                                                                                   -------   --------
         Total deferred tax assets .............................................     3,686     3,907
                                                                                   -------   --------
    Valuation allowance for deferred tax assets ................................      --        (513)
                                                                                   -------   --------
        Net deferred tax assets ................................................      --       3,394
                                                                                   -------   --------
Deferred tax liabilities:
     Depreciation ..............................................................      --        (408)
                                                                                   -------   --------
         Total deferred tax liabilities ........................................      --        (408)
                                                                                   -------   --------
 Net deferred tax asset ........................................................   $ 3,686   $ 2,986
                                                                                   =======   ========
</TABLE>


8.  Commitments and Contingencies

License Agreements

     We have agreements with prominent spine surgeons, who assisted in the
development of certain of our spine systems, under which we pay royalties
ranging from 2% to 7% of net revenues generated from the sale of certain
products. Royalties are paid to the developers of the AGF technology at a rate
of 5% of certain products within this product group.

Litigation

     On September 5, 2000, Interpore Cross' wholly-owned subsidiary, Cross
Medical Products, Inc. ("Cross"), filed suit in the U.S. District Court, Central
District of California, against DePuy AcroMed, Inc., a Johnson & Johnson company
and Biedermann Motech GmbH, which alleges that DePuy AcroMed has infringed and
continues to infringe Cross' U.S. Patent Nos. 5,466,237 and 5,474,555. These
patents relate to screw technology embodied in certain components of the SYNERGY
Spinal System. The Complaint seeks damages for willful past and continuing
infringement of the patents. The Complaint also seeks a declaratory judgment
against DePuy AcroMed and Biedermann Motech that Cross is not infringing
Biedermann Motech's patent no. 5,207,678. DePuy AcroMed has responded to the
Complaint alleging that Cross' patents are invalid and unenforceable, and
alleging that it does not infringe.

     On May 21, 2001, the Court dismissed Cross' declaratory judgment claim,
ruling that Biedermann Motech is not subject to personal jurisdiction in
California and is indispensable to the claim.


                                       F-17

<PAGE>

                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     On January 30, 2002, the Court granted Cross' motion for summary judgment
of infringement of certain claims of Cross' `237 Patent. On February 11, 2002,
the Court granted Cross' motion for summary judgment of infringement of certain
claims of Cross' `555 Patent. On March 20, 2002, the Court granted DePuy
AcroMed's motion for summary judgment of invalidity of Cross' 237 Patent, ruling
that this patent is partially invalid. Cross is exploring strategies in response
to this ruling and currently plans to challenge it. However, there can be no
assurance that Cross will be successful in any such challenge.

     The trial had previously been scheduled for May 2002, but because the
parties are still involved in discovery, it has been postponed to a date that is
yet to be determined.

     Aside from the patent litigation, the nature of Interpore Cross' business
subjects it to product liability and various other legal proceedings from time
to time. Interpore Cross is currently involved in legal proceedings incidental
to the normal conduct of its business. It does not believe that any liabilities
relating to the legal proceedings to which it is a party are likely to be,
individually or in the aggregate, material to its consolidated financial
condition or results of operations.

9.  Lease Commitments

     Future minimum rentals under noncancelable operating leases for
manufacturing and office facilities and equipment at December 31, 2001 are as
follows (in thousands):


        2002 ..........................................  $      648
        2003 ..........................................         133
        2004 ..........................................          11
        Thereafter ....................................         --
                                                         ----------
                                                         $      792
                                                         ==========

     Rent expense was $640,000, $698,000 and $759,000 in 1999, 2000 and 2001,
respectively.

     The lease for Interpore Cross' principal office and manufacturing facility,
which expires January 31, 2003, provides a right to extend the lease for an
additional five years at the fair market lease rate of the facility on the
extension date, but not less than the rate paid by Interpore Cross during the
month immediately preceding the commencement of the extension period.


                                       F-18

<PAGE>

                          INTERPORE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11.  Quarterly Results (unaudited)

     The following table presents a summary of the quarterly results of
operations for 2000 and 2001 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                   Quarter
                                         -------------------------------------------------------------
                                             First          Second           Third          Fourth
                                         -------------   -------------   -------------   -------------
<S>                                      <C>             <C>             <C>              <C>
2000
Net sales .............................   $   11,443      $   11,330      $   10,613      $   10,933
Gross profit ..........................        7,891           7,885           7,494           7,589
Net income ............................        1,157             974           1,178             824
Net income per share--basic ...........   $      .08      $      .07      $      .08      $      .06
Net income per share--diluted .........   $      .08      $      .07      $      .08      $      .06

2001
Net sales .............................   $   11,281      $   13,016      $   12,230      $   14,769
Gross profit ..........................        7,919           9,293           8,773          10,956
Net income ............................        1,004           1,230             813           1,211
Net income per share--basic ...........   $      .07      $      .09      $      .05      $      .07
Net income per share--diluted .........   $      .07      $      .08      $      .05      $      .07
</TABLE>


                                       F-19

<PAGE>

                          INTERPORE INTERNATIONAL, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                  Years ended December 31, 1999, 2000 and 2001

<TABLE>
<CAPTION>

                                                           Balance at                                          Balance at
                                                          Beginning of      Additions                            End of
                     Description                             Period        (Deductions)       Write-offs         Period
------------------------------------------------------   ---------------  ---------------   ---------------  ---------------
<S>                                                      <C>               <C>              <C>              <C>
Year ended December 31, 1999:
     Allowance for doubtful accounts receivable ......    $    506,000     $    120,000      $    110,000     $    516,000
     Reserve for excess and obsolete inventory .......         837,000        1,198,000           598,000        1,437,000

Year ended December 31, 2000:
     Allowance for doubtful accounts receivable ......    $    516,000     $    120,000      $    175,000     $    461,000
     Reserve for excess and obsolete inventory .......       1,437,000        1,394,000                 -        2,831,000

Year ended December 31, 2001:
     Allowance for doubtful accounts receivable ......    $    461,000     $    325,000      $     98,000     $    688,000
     Reserve for excess and obsolete inventory........       2,831,000        1,441,000           296,000        3,976,000
</TABLE>



                                       F-20

<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number    Description
------    ------------
 3.01     Certificate of Incorporation of Interpore International, Inc. as
          amended (1)

 3.02     Bylaws of Registrant (1)

 3.03     Amendment Number One to Bylaws (16)

 4.01     Rights Agreement dated November 19, 1998, between Interpore
          International, Inc. and U.S. Stock Transfer Corporation, which
          includes the form of Certificate of Determination of the Series A
          Junior Participating Preferred Stock of Interpore International, Inc.
          as Exhibit A, the form of Right Certificate as Exhibit B and the
          Summary of Rights to Purchase Preferred Shares as Exhibit C (2)

 4.02     Registration Rights Agreement dated December 8, 1999 by and between
          Interpore International, Inc., John A. Dawdy and Andrew G. Hood (20)

10.01     Cancellation and Release Agreement dated March 1, 1993 among
          Registrant, Interpore Orthopaedics, Inc., Pfizer, Inc. and Howmedica,
          Inc. (3)

10.02     Single Tenant Lease dated July 25, 1991 between Registrant and The
          Irvine Company as amended by a Third Amendment to Lease dated December
          11, 1996 (4);

10.03     Amended and Restated Loan and Security Agreement dated June 22, 1999
          among Registrant, Interpore Orthopaedics, Inc., Cross Medical
          Products, Inc., Interpore Cross International Inc., and Silicon Valley
          Bank (19) and Loan Modification Agreement dated June 21, 2000 (22)

10.04     Amended and Restated Stock Option Plan dated March 19, 1991 (6), First
          Amendment to the Amended and Restated Stock Option Plan, effective
          October 15, 1991 (3); Amendment to the Amended and Restated Stock
          Option Plan dated September 17, 1994 (7)

10.05     1995 Stock Option Plan (8)

10.06     Stock Option Plan for Non-Employee Directors of Interpore
          International (9)

10.07     Danninger Medical Technology, Inc. Amended and Restated 1984
          Non-Statutory Stock Option Plan (10)

10.08     Danninger Medical Technology, Inc. Amended and Restated 1984 Incentive
          Stock Option Plan (10)

10.09     Cross Medical Products Inc. Amended and Restated 1994 Stock Option
          Plan (10)

10.10     Asset Purchase Agreement dated March 12, 1997, among Cross Medical
          Products, Inc., Danninger Healthcare, Inc. and OrthoLogic Corp. (11)

10.11     Indenture concerning 8.5% Convertible Subordinated Debentures between
          Cross Medical Products, Inc. and Fifth Third Bank (12)

10.12     Supplemental Indenture between Interpore International, Inc. and Cross
          Medical Products, Inc. and Fifth Third Bank (5)

10.13     Form of Indemnification Agreement (13)

10.14     Schedule of Parties to Form of Indemnification Agreement (14)

10.15     Agreement between Dr. Edward Funk and Cross Medical Products, Inc.
          dated February 11, 1998 (15)

<PAGE>

 Exhibit
 Number   Description
--------  -----------
10.16     Form of Employment Agreement dated July 31, 2000 / August 30, 2000
          between Interpore International, Inc. and its executive officers (23)

10.17     Schedule of Parties to Form of Employment Agreement dated July 31,
          2000 / August 30, 2000 (23) 10.18 1999 Consultants Stock Option Plan
         (17) 10.19 Amended and Restated Employee Qualified Stock Purchase Plan
          dated November 13, 1998 (18)

10.20     Asset Purchase Agreement dated December 8, 1999, by and among
          Interpore Orthopaedics, Inc., Quantic Biomedical, Inc., Quantic
          Biomedical Partners, John A. Dawdy and Andrew G. Hood (20)

10.21     2000 Equity Participation Plan (21)

10.22     Agreement and Plan of Merger among Interpore International, Inc., OP
          Sub, Inc., American OsteoMedix Corporation and the shareholders set
          forth on the signature pages thereto, dated as of May 30, 2001 (24)

21.01     Subsidiaries of the Registrant

23.01     Consent of Ernst & Young LLP, Independent Auditors
----------

(1)  Incorporated by reference from our Registration Statement on Form S-4,
     Registration No. 333-49487.

(2)  Incorporated by reference from our Current Report on Form 8-K dated
     December 1, 1998.

(3)  Incorporated by reference from our Registration Statement on Form S-1,
     Registration No. 33-69872.

(4)  Incorporated by reference from our Current Report on Form 8-K dated
     February 11, 1998.

(5)  Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended June 30, 1998.

(6)  Incorporated by reference from our Registration Statement on Form S-8,
     Registration No. 33-77426.

(7)  Incorporated by reference from our Registration Statement on Form S-8,
     Registration No. 33-86290.

(8)  Incorporated by reference from our Proxy Statement for the 1994 Annual
     Meeting of Shareholders.

(9)  Incorporated by reference from our Proxy Statement for the 1995 Annual
     Meeting of Shareholders.

(10) Incorporated by reference from our Registration Statement on Form S-8,
     Registration No. 333-53775.

(11) Incorporated by reference from the Cross Medical Products, Inc. Annual
     Report on Form 10-K for the year ended December 31, 1996.

(12) Incorporated by reference from the Cross Medical Products, Inc.
     Registration Statement on Form S-2, Registration No. 333-02273.

(13) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended March 31, 1998.

(14) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended September 30, 1998.

(15) Incorporated by reference from the Cross Medical Products, Inc. Annual
     Report on Form 10-K for the year ended December 31, 1997.

(16) Incorporated by reference from our Annual Report on Form 10-K for the
     fiscal year ended December 31, 1998.

(17) Incorporated by reference from our Proxy Statement for the 1999 Annual
     Meeting of Stockholders.

(18) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended March 31, 1999.

(19) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended June 30, 1999.

(20) Incorporated by reference from our Annual Report on Form 10-K for the
     fiscal year ended December 31, 1999.

(21) Incorporated by reference from our Proxy Statement for the 2000 Annual
     Meeting of Stockholders.

(22) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended June 30, 2000.

(23) Incorporated by reference from our Quarterly Report on Form 10-Q for the
     fiscal quarter ended September 30, 2000.

(24) Incorporated by reference from our Current Report on Form 8-K filed July
     10, 2001